Fidelity Japan Trust PLC (LON:FJV) published its monthly factsheet for the period ended February 2024.
Portfolio Manager Commentary
The Trust recorded NAV returns of 8.6% over the 12 months to February 2024, underperforming the reference index, which returned 19.9%. The Trust’s share price rose by 5.0% over the same period and the discount to NAV widened.
While the Japanese market has recorded historical gains, significant style divergences have persisted. The US bond yield cycle and accompanying currency trends have exerted a sizeable impact on style returns, with strong gains in large-cap value stocks contrasting with the far more muted performance of small-cap growth names. These trends have continued to generate performance headwinds, particularly during periods of sharp rises in long-term interest rates. Against this backdrop, the underweight exposure to traditional value areas of the market, primarily automobiles, weighed on relative returns.
A peaking out of the interest rate cycle in the US is generally conducive to better performance by growth stocks, an area of the Japanese market where we are seeing a lot of undervaluation. From a technical perspective, the recent market rally in Japan has been concentrated in a small number of large-cap names that are collectively looking overbought and investor interest is likely to move down the market cap scale. In particular, mid/small caps that are overlooked or under appreciated by the market and are trading on reasonable valuations offer a source of differentiated returns for the Company.
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.
