Fidelity Japan Trust, Strong bounce back expected, January factsheet

Fidelity Japan Trust PLC (LON: FJV) published its monthly factsheet for the period ended 31 January 2023. 

Portfolio manager commentary

The Trust recorded NAV returns of -1.6% over the 12 months, underperforming the reference index, which returned 3.4%. The discount to NAV widened over the same period and the Trust’s share price returned -8.1%. 

Style headwinds worked against performance, as moves toward monetary tightening in the US and Europe spurred a sharp rotation into value and weighed heavily on mid/small cap growth stocks. Holdings in software companies were among the most significant detractors. As these companies shift from investment to profit mode, however, we expect the market to reappraise them. 

Inflation surprises have driven market expectations for the pace of interest rate hikes by the US Fed. As economic activity weakens, bond yields are likely to be restrained by lower levels of growth. If the view that long-term rates have peaked gains traction, this would help to put a floor under equity markets. It would also support a bottoming out in growth stocks, and we would expect names that performed poorly in 2022 to come back quite strongly. Against this backdrop, there is the potential for beaten-up technology stocks to start performing again. We are also positive on the prospects for Japanese companies in the retail and consumer products space that have a strong presence in China and can benefit from the country’s reopening. In terms of key risks, headwinds from external demand are prominent, with signs of weakness in the manufacturing sector already becoming more apparent.

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. 

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