Schroder Japan Trust: Select 50 fund option

It is no surprise that the ten best-selling investment trusts this year include several well-known tech funds and income plays, but there is also a more unusual name on the list. Despite operating in an unfashionable sector, the second most popular choice was the Schroder Japan Trust, yet there are good reasons why it has attracted such strong interest.

Japan is undergoing a major structural shift, which has gathered momentum following the Liberal Democratic Party's (LDP) landslide election victory in February. This favourable backdrop has helped drive strong equity market returns¹ and created a fertile hunting ground for an experienced stock picker like manager Masaki Taketsume to exploit.

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Objective and approach

The Schroder Japan Trust aims to achieve returns in excess of the Tokyo Stock Price index (TOPIX), as measured in sterling, over the longer term. It may also appeal to income seekers, as it targets an annual dividend of 4% of net asset value (NAV), which makes it the highest yielding option in the sector.²

Taketsume is supported by a predominantly Japan-based team of local investment professionals, giving the trust access to extensive on-the-ground research. They follow a contrarian, high conviction approach, that focuses on undervalued businesses with strong growth prospects and the potential to improve returns. This disciplined process has helped secure it a place on the Select 50 list of handpicked funds.³

How does the manager see it?

In the latest interim report, Taketsume said that while the Japanese equity market is ultimately efficient at reflecting companies' intrinsic value, significant pricing inefficiencies frequently emerge over the short to medium term. These mispricings create repeatable opportunities to identify and invest in undervalued stocks.⁴

He added: “Japan-specific tailwinds – including ongoing progress on corporate governance and capital discipline, improving political stability and the continued shift from deflation to inflation – should support durable earnings growth and rising shareholder returns.”⁵

“We continue to favour businesses with robust balance sheets, resilient cash generation and clear capital allocation discipline – particularly those demonstrating tangible progress on return on equity, governance standards and shareholder returns through dividends and buybacks.”⁶

The portfolio

At the end of May, the trust held 64 stocks, with the ten largest positions accounting for 33.7% of the assets. These included well-known Japanese companies such as Hitachi, Toyota and Mitsubishi, alongside a number of less-familiar names.⁷

Relative to the benchmark, the portfolio was most overweight in the Services, Construction and Electric Appliances sectors, while its largest underweights were in Wholesale Trade, Banks and the catch-all "Others" category.⁸

Top 10 holdings

1. Hitachi
2. Sumitomo Mitsui Financial Group
3. TDK Corp
4. Ibiden
5. Recruit Holdings
6. Toyota
7. Orix Corp
8. Tokio Marine Holdings
9. Mitsubishi Electric
10. Mizuho Financial Group

Source: Schroder Japan Trust factsheet, 31.5.26

Performance

The trust has enjoyed an impressive 12-months, generating a share price total return of 56.1%, versus 31.1% from the index. Its longer-term record is also strong, with a 10-year annualised gain of 13.9% compared to 10.6% for the benchmark, a period that goes beyond the appointment of Taketsume in July 2019.⁹         

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. This investment trust invests in overseas markets and so the value of investments can be affected by changes in currency exchange rates. Select 50 is not a personal recommendation to buy or sell a fund. The shares in Schroder Japan investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. Before investing, please read the relevant key information document which contains important information about the fund. Eligibility to invest in an ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.