8 abrdn Japan Investment Trust plc
Performance Record
The last year to 31 March 2023 was a difficult period for
stock markets globally, in particular for better quality
growth stocks, as well as the broader global economy.
Japanese equities faced an uphill struggle for much of the
period with investors seemingly overly focused on the
macro at the expense of company fundamentals which,
for the most part, remain strong.
The Company’s net asset value (NAV) total return for the
year to 31 March 2023 was -4.4%, in sterling terms
underperforming the TOPIX Index, the Company’s
benchmark’s gain of 2.8%. The Company’s Ordinary share
price ended the year at 557.5p, down from 635.0p at the
start of the period, and the discount to NAV per Ordinary
share widened from 11.0% to 16.4%. Over one, three and
five years to 31 March 2023 the Company’s NAV total
return has lagged the TOPIX Index (in sterling terms) by
7.2% and 9.9% and 13.1% respectively; and, since the
change of mandate in October 2013, the Company’s NAV
total return has lagged the TOPIX Index by 0.4% per
annum in sterling terms.
Every year the Company has a defined discount
monitoring period, being 90 days up to 31 March 2023 (the
“Discount Monitoring Period”). The average discount for
this year’s monitoring period was 14.0%, above the target
of 10.0% requiring a continuation vote to be put to
shareholders at the next Annual General Meeting (“AGM”)
or a general meeting held before the AGM.
The Board, while an enthusiastic supporter of the
attractions of Japan’s equity markets for investment
opportunities, has long been mindful of the need for the
Company to deliver consistent competitive investment
performance, increased scale, greater liquidity and a
more modest discount. Increased investment resources,
an enhanced dividend policy, more focused marketing
and a change of corporate broker are some of the
strategies the Board has employed in an attempt to
address the challenges relating to performance, scale,
liquidity and the discount.
Strategic Review
Following consultation with a number of the Company’s
major shareholders, the Board undertook a rigorous
strategic review of the opportunities in the Japan fund
sector, to consider which investment strategy would be
best for shareholders while remaining invested in the
Japanese market. The Board considered solutions among
closed-end investment trusts, where greater liquidity and
a lower discount can reasonably be expected and where
there is a clear, focused and differentiated investment
strategy which has delivered strong performance.
The Board believes the strategic review demonstrated
that the case for taking advantage of the corporate
governance changes in Japan is more compelling than
ever. Over recent decades, many Japanese companies
have accumulated significant cash reserves and have
reduced their reliance on debt financing. This has resulted
in many companies having excess capital and,
consequently, generating lower returns for equity
investors. The Japanese authorities are seeking to address
this by implementing regulations to improve governance
and deliver improved returns to shareholders. The Board is
of the view that this provides a highly favourable
background for an active investment approach,
particularly in smaller quoted companies.
Proposed rollover into Nippon Active Value
Fund plc (“NAVF”)
As announced on 18 May 2023, the Board has agreed
terms for a proposed combination of the assets of the
Company with the assets of NAVF (the “Proposal”). NAVF
is a top-performing UK investment trust which targets
attractive capital growth for its shareholders through
active engagement with a focused portfolio of small and
mid-cap quoted companies which have the majority of
their operations in, or revenue derived from, Japan and
that have been identified as being undervalued.
The proposed combination with NAVF is expected to
improve the enlarged fund's liquidity as well as spreading
the fixed costs of NAVF over a larger pool of assets.
Following completion of the Proposal, it is expected that a
director of the Company will join the Board of NAVF,
taking the total number of directors of NAVF to six. The
Company has consulted with a number of its major
shareholders, together holding around 30% of the
Company's issued share capital, who have indicated
support for the Proposal.
Implementation of the Proposal is subject to the approval,
inter alia, of the Company’s shareholders as well as
regulatory and tax approvals and approval by the
shareholders of NAVF. A circular providing further details
of the Proposal and convening general meetings to seek
the necessary shareholder approvals will be published by
the Company as soon as practicable. It is anticipated that
the Proposal, if approved, will be implemented in Q3 2023.
The Board believes that implementation of the Proposal is
in the best interest of shareholders as a whole and many
shareholders will wish to continue to be invested in the
Chairman’s Statement