SCHRODER JAPAN GROWTH FUND: Japanese Stocks May Grow

Although the Japanese stock market reached a 30-year high in February, fund managers believe the outlook for equities remains positive. Stock prices, they argue, continue to look cheap compared to other markets such as the United States, where stock prices have risen sevenfold over the same period.

Masaki Taketsume, the London-based manager of Schroder Japan Growth, is among those who believe the Japanese stock market has more to offer investors, both in the short and long term. The 253 million trust he manages is listed on the UK stock market and invested in 69 companies, including some well-known names such as Hitachi, Nippon, Sumitomo and Toyota.

In the shorter term, Taketsume is encouraged by the recent intensification of the Covid-19 vaccination program by the Japanese government. It means that more than a million people in Japan are now vaccinated every day. “Consumer sentiment is definitely improving as a result,” he says, “which is good for the stock market.”

While the 2020 Summer Olympics in Tokyo later this month shouldn’t capture the country’s imagination just yet, Taketsume believes the very fact that they are taking place will further boost consumer confidence.

further. “As long as the government can keep Covid-19 infections to a manageable level, I’m sure the Olympics will have a positive effect,” he predicts. He is also encouraged by the fact that the pandemic has forced many Japanese companies to embrace the internet a little late, a move that should improve productivity.

Long-term, Taketsume is encouraged by the efforts many companies are making to become more shareholder-friendly, for example by improving returns on shareholder capital and paying investors higher dividends. “Corporate governance is improving and providing a strong tailwind for share prices,” he says.

Last week, an Association of Investment Companies survey of Japanese fund managers identified corporate governance reform as the top cause for optimism.

Taeko Setaishi, investment advisor to fund Atlantis Japan Growth, said that “both international and domestic investors are expected to respond positively to the ongoing corporate governance reforms in Japan.”

Schroder Japan Growth’s record of performance is not exemplary when compared to its competitors. While it has had a good year with a total return of 26 percent, its long-term record is inferior to rivals. Japanese mutual funds from Baillie Gifford, Fidelity and JPMorgan all have superior five-year records.

Trust scrutineer Fund Caliber rates Baillie Gifford Japan as an “elite” fund because of the management team’s disciplined investment approach and the trust’s competitive annual cost of approximately 0.7 percent. By comparison, Schroder’s fund has an equivalent charge of 0.92 percent. Over the past five years, the trusts have generated returns of 110 and 58 percent, respectively.

Taketsume is part of a 16-person team at Schroders that takes a closer look at the Japanese stock market, most of whom are based in Tokyo. The trust’s stock price is at a double-digit discount to its asset value, which could appear attractive to investors who believe the price will fall as the Japanese stock market remains in recovery mode.

For the year to date, the Nikkei 225, Japan’s leading stock index, is up six percent and 29 percent over the past 12 months. The trust’s stock exchange identifier is 0802284 and the London Stock Exchange symbol (ticker) is SJG.