JPMorgan Japan Small Cap Growth & Income plc (LON:JSGI) has now provided its month in review as of 31 July 2023.
The MSCI Japan Small Cap Index rose by 2.9% in Japanese yen terms, supported by a broad-based rise in Japanese equities as well as expectations of a further improvement in corporate governance following earlier announcements by the Tokyo Stock Exchange.
The portfolio outperformed the benchmark over the month, with sector allocation detracting and stock selection contributing to performance. From a sector perspective, overweight positions in materials as well as being underweight equity real estate investment trusts contributed to value. On the other hand, not holding names in the banks sector was the largest detractor from performance.
At the stock level, our overweight positions in Nextage (car dealerships) and Capcom (gaming) were the top contributors. Nextage operates car dealerships as well as car maintenance and motor insurance agency businesses. The company is expected to grow on the back of new store openings and aided by better unit economics. Capcom rose on the back of results that were ahead of consensus estimates as well as expectations of new game launches in September.
On the other hand, overweight positions in Topcon (precision agriculture company) and Mitsui Chemicals (chemicals) detracted the most. Topcon fell after reporting cyclically weak results, while the share price of Mitsui Chemicals corrected after a period of outperformance.
Looking Ahead
There has been an acceleration in improvements in corporate governance and balance-sheet management this year. The structural changes in the corporate governance landscape are likely to have a long and strong duration, which has brought a strong tailwind for stock selectors who are identifying companies starting to change. Buybacks appear to be in favour, with the number of buybacks announced (totalling more than JPY 5 trillion) hitting historical highs. Also, shareholder activism has started to be both accepted and successful. This domestic pressure, combined with activist funds, is powerful and by far the most important thing currently taking place, in our view.
For those looking for equity investing in Japan, JPMorgan Japan Small Cap Growth & Income plc (LON:JSGI) provides access to the innovative and fast growing smaller stocks that are at the core of the Japanese economy. Investors benefit from a stock selection process based on extensive experience and local knowledge.
