JPMorgan Japan Small Cap Growth & Income plc (LON:JSGI) has provided its November commentary.
Month in review
As of 30/11/2022
- In November, the Japanese equity market (TOPIX) appreciated 2.9% in JPY terms. Japanese equities continued to rally following the release of economic data in the US that was not supportive of aggressive monetary tightening.
- The portfolio performed in line with the benchmark over the month. Stock selection was slightly negative, while the asset allocation effect was marginally positive.
- At the sector level, overweighting the software & services sector and underweighting the real estate sector added value. Overweighting the media & entertainment sector, on the other hand, detracted value.
- At a stock level, the largest positive contributor was our overweight position in Sangetsu (interior decorating products). The company has managed to increase its product prices and successfully expand its margin, which has more than covered rising input costs. With an undemanding valuation, we are happy to continue holding the stock. Our overweight position in Litalico, on the other hand, was the largest detractor from performance. The company is the leading company specialising in employment support services for people with disabilities. The company’s share price declined on the back of a temporary decline in sales, but its long-term sales and profit forecasts remain intact.
As of 30/11/2022
- The post-Covid reopening of the country and the energy transition are likely to gain more attention going forward. Valuations look attractive, with the Japanese equity market’s price-to-book ratio near a historical bottom.
- In terms of corporate earnings, the weak Japanese yen is supporting exporters and manufacturers with overseas exposures, helping overall earnings-per-share growth stay in positive territory. The July-September reporting season finished with net profits up 2%, excluding SoftBank (36% including it). Full-year guidance was raised to 4%.
- We have seen a shareholder return revolution in Japan, with share buybacks up 54% on last year’s record level. There have been large buybacks across many sectors, even by some companies that are considered very conservative.
- The corporate governance story continues to develop, and this increasingly looks structural in nature. The corporate governance code has opened a door for activists, both domestic and foreign, who are helping to progress the trend. It is important to note that over 50% of Japanese companies have net cash positions. This is a significantly higher percentage compared to companies in Europe and the US.
Japan income fund, JPMorgan Japan Small Cap Growth & Income (LONJSGI), targets Japan income without compromising on Japanese growth opportunities. This Japan income investing opportunity gives investors access to a diverse and fast growing sector managed by local managers.