JPMorgan Japan Small Cap Growth & Income plc (LON:JSGI) has now published its April 2024 factsheet which can be found below.
Monthly As of 31/03/2024
While the portfolio posted positive absolute returns over the month, it underperformed the benchmark. Overweight exposure to the software & services sector detracted the most, while overweights to the semiconductor & semiconductor equipment sector contributed.
In terms of stock selection, overweights to Osaka Soda (a pharmaceutical components maker) and MEC Company (which makes adhesives for electronic substrates) were the top detractors. The share prices of both fell on profit-taking after a period of outperformance.
Seiko Group (a luxury watch maker) and SWCC Showa Holdings (industrial cables) were the top contributors. The share price of Seiko rose after the company reported results that came in ahead of expectations, with a weakening yen and a change in products driving operating profits.
The share price of SWCC Showa rose on expectations that the company will be a beneficiary of an increase in capital spending in Japan.
Looking Ahead As of 31/03/2024
A structurally tight labour market should support the positive trends being seen in wage growth. Recent wage negotiations have been in the range of ~5%. This is expected to drive real wage growth (which is currently negative) into positive territory over the course of the year, which would in turn provide an impetus to consumerism and the overall economy. The Bank of Japan is expected to welcome these developments, as by their own estimates, Japan is only in the early stages of wage-driven inflation.
The revamped Nippon individual savings account programme seems to be gaining traction and attracting domestic investors. This will be an interesting trend to follow and should help gauge domestic interest in Japanese equities.
Structural improvements in corporate governance continue to be seen in 2024. Buybacks and management buyouts have retained their strong momentum from last year over to this year. Growth in dividend payments by Japanese companies is expected to continue. Japanese equities have delivered higher dividend growth compared with their peers over the previous decade.
In our view, the combination of structural changes taking place in the Japanese corporate sector combined with the country’s political stability offers attractive investment opportunities for investors. As of the end of March, valuations in Japan appeared reasonable, trading at 16.0x price to one-year forward earnings and 1.5x price-to-book ratio.
JPMorgan Japan Small Cap Growth & Income Investment Trust (LON: JSGI) is actively managed by a Tokyo-based investment team and provides access to the innovative and fast-growing small and medium-sized companies that are at the core of the Japanese economy, while paying a regular quarterly income.
