Sector leading performance: CC Japan

 

CCJI’s differentiated investment approach has led to sector-leading performance…by Josef Licsauer

 

This trust has been awarded a rating by Kepler Trust Intelligence for income & growth… Find out more 

 

Overview

 

CC Japan Income & Growth Trust (CCJI) was launched in December 2015 in response to the rising opportunities coming from Japan’s corporate governance reforms, which aim to better Japanese companies’ focus on capital efficiency and shareholder returns. Richard Aston has been at the helm since the beginning and has cultivated an investment process which aims to capitalise on these reforms, focusing on delivering total returns through a combination of capital and income growth (see Portfolio). This approach sets it apart from most peers in the AIC Japan sector, which tend to be more stylistically growth-oriented strategies and this differentiation has been integral to CCJI’s long-term outperformance of both the peer group and index (see Performance).

Over the last 12 months, Richard has found more opportunities in the small- and mid-cap space. This part of the market has been under pressure over the last few years so he finds valuations attractive. Moreover, improvements from corporate governance reforms are starting to trickle down the market cap scale, so he argues growth prospects look brighter too. As a result, he has initiated positions in Nareru, a provider of engineering outsourcing services and Mani, a manufacturer of medical equipment.

As part of delivering a strong total return, CCJI aims to offer investors an attractive income profile. Since inception, CCJI has an unbroken track record of consecutive annual Dividend increases leading to a compound annual growth of 8.5% and a fully covered dividend yielding 2.7%, the highest in the AIC Japan sector and above the TOPIX’s yield of 2.0%.

CCJI has been awarded a Kepler Income & Growth rating for 2024.

 

Analyst’s View

 

We think CCJI is a differentiated trust in the sector, backed by an experienced manager with a proven approach to investing in Japanese companies. Its dual objective of pursuing strong total returns, with both capital and income growth as key components, sets it apart from its growth-oriented peers (see Portfolio).

We think that CCJI is also a compelling option for investors seeking a diversified source of income in Japan. Richard targets companies displaying consistent and growing returns to shareholders, avoiding those that are heavily indebted or unable to demonstrate dividend stability or growth. This focus has led to an unbroken track record of Dividend increases since launch. CCJI also has the potential to deliver income resilience in periods of market stress, partly thanks to its substantial reserves, as well as a yield premium to the market and the highest yield in the AIC Japan sector.

The outlook for Japan is one of optimism, driven by the emergence from a deflationary environment and the positive impact of corporate governance reforms. Richard believes the latter has resulted in more interest from foreign investors as well as tangible improvements from domestic companies, arguing the improvements are now also spreading out through the small- and mid-cap companies he invests in. Richard’s expertise here positions him well, in our view, to take advantage of the opportunities. A mixture of low valuations, long-term structural changes, and the welcome return of modest inflation, paint an encouraging economic outlook and potentially exciting environment to invest in.

 

Bull

 

• Long-term outperformance driven by manager’s stock selection
• Strong dividend growth potential, with dividends in Japan boosted by corporate governance reforms
• A core focus and desire to achieve dividend income combined with capital growth differentiates it from the peer group

 

Bear

 

• Use of gearing can magnify the losses in a market downturn
• Trust may underperform during deep-value stock rallies
• While offering a greater return potential, having a greater exposure towards mid- and small caps can increase risk

See the full research on CC Japan Income and Growth Trust here >

 

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Disclaimer

 

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by CC Japan Income & Growth. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.