Leading the AIC Japan sector over both one and five years: CC Japan Income and Growth

The CC Japan Income & Growth Trust plc (CCJI) portfolio contains what its manager Richard Aston believes are Japan’s premier corporate leaders. These reflect a range of companies across all valuations and market caps, though the majority of them are amongst Japan’s largest and most long-standing companies.

While CCJI has a mandate to produce both capital and income growth, Richard’s investment process is one which overwhelmingly focusses on a company’s ability to generate shareholder returns, with a company’s dividend payouts and sustainability being his preferred metrics for identifying a high-quality business.

We describe his process in more detail, and give examples of these corporate leaders, in the Portfolio section.

Richard’s valuation-conscious approach to stock selection has led CCJI to become the leading Japanese equity trust in the large- or small-cap sectors over both a 12-month and a five-year period, while it has also substantially outperformed the TOPIX Total Return Index over these time periods (as of 30/06/2022).

In fact, CCJI’s strong performance makes it the only Japanese equity trust to have generated a positive NAV return over the last year. CCJI also has leading risk–return statistics, thanks not only to its impressive Performance but also its lower volatility.,

CCJI also offers one of the highest yields in its sector, currently 3.4%. Part of Richard’s investment process is to focus on companies which exemplify Japan’s ever-improving corporate governance, with his holdings so far continuing to increase their dividend payouts even in the face of today’s more challenging environment. Despite its strong performance and high yield, CCJI trades on an 10.4% discount which is slightly narrower than its AIC Japan Sector peer group average but wider than its own five-year average.

We believe CCJI’s strong performance demonstrates the benefits of Richard’s disciplined approach to equity valuations, and also his understanding of the Japanese equity market. Despite his focus on dividends and shareholder returns, he has generated good returns with his flexible approach across both dominant mega caps and smaller, more nimble growth companies. Importantly, CCJI’s balanced approach to stock selection has also led to it having lower historical volatility than its peers, allowing it to also be held by more cautious investors.

Even if you don’t have a strong view on the Japanese economy, Richard has shown that Japan’s corporate leaders can demonstrate high-quality characteristics that can perform well in difficult environments. In fact, we believe the performance of CCJI over the past 12 months has shown that Japanese companies – and specifically those with resilient balance sheets and decades of experience – may be amongst the best placed to weather periods of economic hardship. This is reflected in CCJI’s positive 12-month Performance, which not many listed equity trusts have achieved in a tumultuous period. We also believe that CCJI’s discount offers an attractive entry point, as it has been caught up in the wider sell-off despite its impressive performance.

CCJI is also characterised by its attractive yield, even though at 3.5% it does lag the average of both the global and UK equity income sectors. However, we believe that the diversification CCJI offers is attractive, as is the strong underlying Dividend growth which supports the trust’s yield.