RCS - Schroder Japan Trust - Results analysis from Kepler Trust Intelligence

Schroder Japan TrustAnnouncement

14/04/2025 16:15

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RNS Number : 9605E  Schroder Japan Trust PLC  14 April 2025

Schroder Japan (SJG)

14/04/2025

Results analysis from Kepler Trust Intelligence

Schroder Japan Trust (SJG) has released its half-year results for the six
months to January 2025, reporting NAV total returns of 4.0% and a share price
total return of 3.2%, surpassing the TOPIX's 1.4% return. Ongoing tailwinds
from Japan's corporate governance reforms, rising wages and increased business
investment supported strong earnings from SJG's underlying holdings. Combined
with a favourable market towards value-oriented sectors, where SJG is well
represented, Masaki Taketsume's effective stock selection and the impact from
gearing contributed to outperformance over the period.

SJG's enhanced dividend policy, unveiled in June 2024, sees it paying out 4%
of the average NAV each financial year, broadening its appeal as an
income-focussed option. The board has begun declaring quarterly dividends for
FY2025, with the first two amounting to 2.82p and 2.89p per share,
respectively.

Kepler View

We think these are positive results for Schroder Japan Trust (SJG). The
Japanese stock market faced a notable setback in late 2024, triggered by an
unexpected interest rate hike from the BOJ, which strengthened the yen and
sparked the unwinding of yen carry trades. Market volatility has continued in
2025, with tariff-induced uncertainty taking centre stage following President
Trump's recent announcement. Whilst developments remain fluid, global markets
have been rattled-and Japan is no exception.

Despite market turbulence during the reporting period, manager Masaki
Taketsume remained steadfast, maintaining a clear focus on stock selection as
the main driver of returns rather than attempting to reposition the portfolio
in response to macro or political noise. Several portfolio holdings
contributed strongly to performance. Notably, Fujikura and Hitachi rallied on
growing enthusiasm for generative AI technologies, given their key roles in
supporting AI infrastructure and improving power grid efficiency. However, not
all positions added value. Some of SJG's smaller company holdings
underperformed, with the domestic environment and volatility-driven flows into
large-cap stocks acting as headwinds. Tazmo and Fukushima Galilei were among
the detractors.

Still, Masaki has used recent volatility to selectively add high-quality names
at what he deems attractive valuations given the upside potential on offer.
One example is Fanuc-a global leader in factory automation and industrial
robotics-which was initiated during the period. Masaki notes that the company
holds a dominant market position in the US industrial robotics market and
stands to benefit from rising manufacturing capital expenditure, which could
drive stronger earnings growth. Recent share price weakness, linked to
concerns around the impact of US tariffs, provided a compelling entry point.

It's now been just over five years since Masaki took the reins as SJG's lead
manager and, despite much volatility along the way, the trust has delivered
NAV total returns of 45.7%, outperforming the TOPIX by 7.5 percentage points
to 10/04/2025. Moving forward, we think improvements from corporate governance
reforms and the fact value continues to outperform growth, could remain
supportive factors for SJG's performance, given Masaki's value-oriented and
high-quality investment approach.

We also think it's worth highlighting that the enhanced dividend policy
introduced in 2024 has broadened the trust's appeal as an income-focussed
option within the Japan sector. Meanwhile, the revamped conditional tender
offer mechanism unveiled at the same time provides additional investor
protection-underscoring the board's focus on sustaining long-term performance.

Whilst risks persist, including yen volatility, shifting inflation dynamics,
external trade pressures and tariff uncertainties under President Trump, we
think the long-term case for Japan remains compelling. SJG offers investors
differentiated access to this opportunity. With a seasoned manager at the
helm, a strong performance track record and a refreshed income policy, the
trust is well-positioned to capture the opportunities on offer. At its current
11.4% discount, we believe the trust presents an attractive entry point for
long-term investors seeking exposure to high-quality, undervalued Japanese
companies with strong recovery potential.

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