Japanese equities had a strong start to the year, driven primarily by central bank policy expectations surrounding both the Bank of Japan (BoJ) and the Federal Reserve, along with strong gains in semiconductor-related stocks. However, as expectations of Fed rate cuts waned and geopolitical risks heightened, the upward momentum was capped, with key indices peaking in late March in sterling terms. Since then, markets have struggled to replicate the impressive returns seen earlier in 2024. Despite this, we continue to argue that a combination of low valuations, long-term structural changes – such as corporate governance reforms and the return of modest inflation – paints an encouraging outlook and a potentially exciting environment to invest in.
Fidelity Japan Trust (LON:FJV) has had a tough run over the past three years, which we attribute primarily to its positioning, stylistically speaking. Unlike other markets globally, Japan continues to see value-oriented businesses outperform their growth counterparts, a trend that has persisted for much of the last three years. Consequently, growth-focussed investment trusts in the sector have been hit hard. FJV, with its tilt toward small- and mid-cap growth opportunities, has been one of the most impacted. However, these types of companies have a proven track record of rebounding swiftly in favourable conditions, meaning FJV’s wider-than-average Discount could present a compelling entry point for investors seeking exposure to this part of the market.
Additionally, Fidelity Japan Trust’s small allocation to unlisted companies offers investors access to sources of differentiated returns compared to other trusts in the Japan sector. Overall, we believe FJV serves a specific role within a portfolio: it’s a higher-risk, higher-reward strategy providing balance to global portfolios more heavily weighted toward value-oriented strategies or those lacking exposure to high-growth Japanese businesses.
