Schroder Japan Trust (SJG)
26/09/2024
Results analysis from Kepler Trust
Intelligence
Schroder Japan Trust (SJG)
has released its financial results for the year ending 31/07/2024,
reporting NAV total returns of 21.0% and a share price total return
of 16.1%, outperforming the TOPIX's 16.4% return. A supportive
backdrop for Masaki Taketsume's value-tilted strategy, alongside a
strengthening domestic economy, improving corporate governance and
strong stock selection, were key drivers of this
outperformance.
In June 2024, the board
unveiled a new enhanced dividend policy which sees it pay out 4% of
the average NAV in each financial year. It also announced a
conditional tender offer, citing that if the trust fails to deliver
performance at least in line with the benchmark over a five-year
period from 31/07/2024, it will put to shareholders a proposal for
a tender offer of 25% of the issued share capital at NAV, less
costs.
Kepler
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The past 12 months have been
very positive for Schroder Japan Trust (SJG), as reflected in the
strength of its latest financial results. Masaki attributes the
outperformance not only to stock selection but also to a market
backdrop that's been more conducive to his value-tilted strategy.
Additionally, the Bank of Japan raised rates for the first time in
17 years, meaning a now somewhat normalised monetary policy has
benefitted a number of sectors, notably financials, an area in
which the trust is well-represented. Growing demand for
semiconductors and increasing enthusiasm around artificial
intelligence has also significantly boosted the trust's
tech-related holdings.
Whilst the trust had seen its
dividend grow by 12.7% annually on average over the last decade,
the board decided to unveil an enhanced dividend policy. SJG has
therefore become an attractive way for income seekers to diversify
their portfolio and get access to the exciting reform story in
Japan, in our view, although we note this approach means the
dividend might not be as progressive moving forward because if the
NAV falls, the dividend will be lower. This also makes SJG the
highest yielding trust in the AIC Japan sector. The board also
announced a new conditional tender offer, following on from the
previous one introduced in August 2020. It affords shareholders
some version of protection if the trust underperforms, allowing
them to exit a portion of their investment at NAV, whilst also
acting as a performance incentive for the manager to continue
delivering outperformance.
Over the past 12-18 months,
there have been a confluence of macro-economic factors supporting
its stock markets record-high ascension earlier this year,
including a significant shift in the Japan's corporate governance,
positive inflation, rising wages and an alternative haven for
investors given geopolitical issues with countries like China, who
are still looking for Asia exposure. We think the outlook continues
to look positive and SJG is well-positioned to capture the
potential growth Japan has to offer. It stands out in the AIC Japan
sector, offering investors a differentiated exposure to Japanese
equities through a portfolio of undervalued businesses with strong
growth prospects, which have significant latent recovery potential,
as well as exposure to under-researched opportunities further down
the market cap scale.
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