Nicholas Price has managed the Fidelity Japan Trust (LON:FJV) since September 2015, consistently employing a GARP (growth at a reasonable price) approach. He targets companies with steady earnings growth, but whose shares can be bought at a lower price than the earnings potential suggests they should be, essentially aiming to capitalise when the market is mispricing growth.
A key aspect of Nicholas’ strategy is focusing on small and mid-cap growth businesses, which he believes are often overlooked and under-researched. He targets those which have the potential for significant growth over time, favouring businesses in which he can see material change that has not yet been incorporated into the stock price, such as a shift in the company’s operating environment or general market sentiment. Over FJV’s latest financial year ending December 2023, several mid-cap names, such as Harmonic Drive Systems and Taiyo Yuden, were added to the portfolio due to attractive valuations on a trough-to-peak view and strong mid-term growth prospects. Additionally, Nicholas invests in unlisted companies, accounting for roughly 6% of the portfolio, with notable changes over the year including Innophys, which was redeemed via a share repurchase, and a new investment in taxi app company GO Inc.
FJV’s allocation to small and mid-cap growth businesses hindered performance at times, particularly during periods of significant outperformance of value over growth stocks. However, Nicholas argues these businesses offer stronger alpha potential compared to their larger counterparts and have proven integral to FJV’s long-term outperformance of the TOPIX under his tenure. Moving forward, he sees several potential catalysts for a pickup in performance over 2024, including the governance reforms spreading out through the small and mid-cap companies he invests in.
Fidelity Japan Trust’s Discount is currently wider than its own five-year average, trading at 11.3%.
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