Fidelity Japan Trust PLC (LON:FJV) published its monthly factsheet for the period ended September 2023.
Portfolio Manager Commentary
The Trust recorded NAV returns of 4.7% over the 12 months to September 2023, underperforming the reference index, which returned 15.1%. The Trust’s share price rose by 1.6% over the same period and the discount to NAV widened.
Holdings in factory automation and machinery-related companies that faced a temporary slowdown in earnings due to supply chain disruptions and sluggish demand in China detracted from performance. However, we expect a recovery in the order cycle to take hold towards the end of the year. The underweight exposure to traditional value areas of the market, such as banks and automobiles, weighed on relative returns. Conversely, key active positions in technology-related cyclicals outperformed ahead of an expected bottoming of the semiconductor cycle. Holdings in differentiated small caps also added value.
Japan’s technology sector holds a lot of promise. Globally competitive companies in semiconductor equipment and materials are trading on compelling valuations as we approach the trough of the cycle, and new drivers such as generative AI are emerging. Another area of the market that we would highlight is the mid/small cap growth space, an often-overlooked segment that is trading on cheap valuations. While signs of weakness in China’s recovery and the risk of a US recession represent potential headwinds that could prompt a near-term adjustment, this accumulation of positive factors is supportive of the mid-to-long term outlook for the Japanese market.
Fidelity Japan Trust PLC (LON:FJV) aims to be the key investment of choice for those seeking Japanese companies exposure. The Trust has a ‘growth at reasonable price’ (GARP) investment style and approach – which involves identifying companies whose growth prospects are being under-appreciated or are not fully recognised by other investors.
