Japan equity investments: Fidelity Japan Trust eyes growth stocks return

Fidelity Japan Trust PLC (LON:FJV) published its monthly factsheet for the period ended 28 February 2023 

Portfolio manager commentary

The Trust recorded NAV returns of 0.5% over the 12 months to February 2023, underperforming the reference index, which returned 1.7%. The discount to NAV widened over the same period and the Trust’s share price returned -4.7%. 

Style headwinds worked against performance at times, as moves toward monetary tightening in the US and Europe spurred a rotation into value and weighed on growth stocks. In this environment, holdings in software and internet services companies were among the most significant detractors. The underweight exposure to certain value-oriented segments of the market, most notably banks, weighed on relative returns. On a positive note, domestic reopening names and under covered small caps were among the strongest performers.

Inflation surprises have driven market expectations for the pace of interest rate hikes by the US Fed. As economic activity weakens, however, 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, especially as earnings disappointments are coming out as we approach the trough of the cycle.

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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