The Japanese equity market is sometimes dismissed by international investors as mature, staid and undynamic. But they make this judgement at their peril. The Japanese economy is in the grip of a profound structural transformation, driven by the rapid adoption of digitalisation and other technological innovations, and Japan’s equity market is home to some of the world’s most vibrant, entrepreneurial and fast-growing companies, at the forefront of innovation in a variety of sectors. Many of these businesses are young, small cap companies that could prosper over decades, as they realise their growth potential, at home and on the international stage. In fact, Japan’s small caps have outperformed the broader domestic market significantly over the past decade. Yet the sector is under-researched and most investors pay it scant attention.
Not JPMorgan Japan Small Cap Growth and Income plc (JSGI). It specialises in this part of the market, searching out the hidden gems, with the support of a team of over 20 portfolio managers and analysts based in Tokyo, and thus ideally located to identify attractive investment opportunities. JSGI has a diversified portfolio of around 75 stocks and targets quality businesses with competitive advantages and strong growth prospects. And its managers take a long-term perspective, to give their portfolio companies time to realise their full potential.
Japan’s tech revolution may have been slow to get started compared to other nations, but it is now permeating most sectors of the economy. Its world class manufacturers are leading global suppliers of factory automation equipment, robots and electronic parts and materials. Not to be interpret it as a recommendation, some for example, like MEC, one of JSGI’s largest holdings, operate in lucrative niche markets. MEC supplies specialist chemicals used in the production of printed circuit boards, to customers across Asia and Europe. Another holding, Asahi Intecc, produces medical devices such as catheters and guide wires, while companies such as Taiyo Yuden, IRISO Electronics and Hirano Tecseed, which all feature in JSGI’s portfolio, provide electronic components and specialist products for use in electric vehicles, smart phones and other high tech products.
Digitalisation is transforming many aspects of daily life in Japan, facilitating online banking, medical services, shopping and entertainment, and helping businesses update their work practices and increase productivity. JSGI has exposure to these trends. For example, it owns SpiderPlus, which provides digital draughting and other services to the construction sector, saving companies many hours of manual work. The fund also holds Money Forward, Japan’s leading supplier of cloud-based accounting software. This is a new market in Japan, with significant scope for expansion, while Bengo4.com, a digital signature service, is replacing traditional personal signature stamps….
