Super Mario? It’s Super Michael as Japan fund outruns its rivals
JAPAN is high on the destination wishlist of many holidaymakers with the yen more affordable than in years gone by – when a single drink in a Tokyo bar would buy a whole round back home.
But as far as investors are concerned, there has been something of a mental block when it comes to Japan.
Many have spurned it because of poor demographics (too many older people and not enough young earners) and a rigid and hierarchical business culture. Too often small investor interests have been overlooked.
But a change of government with economic reform high on the agenda in recent years has altered that stance. Investors have enjoyed a more comfortable ride.
Jason Hollands, of broker Tilney, says: ‘Governance reforms have seen businesses adopt more shareholder-friendly practices, with a notable improvement in dividend payouts and buybacks.’
Shareholder perks, now rarely seen in the UK, have taken off in Japan as companies attempt to attract the ordinary investor.
Michael Lindsell, manager of Lindsell Train Japanese Equity, has seen first-hand the benefits of these changes.
These influences – plus his own particular brand of investing, which focuses on selecting high quality companies with strong growth potential and then hanging on to them – have helped the fund to growth double that of its rivals over the last five years.
His only concern about the prosmaller investor stance is that some of the shareholder benefits, such as generous shopping discount cards, are not available to fund managers and so they and their investors are essentially paying for perks they cannot enjoy. But that development aside, nearly half the fund, which contains about 20 shares, is in consumer brands – ones that dominate the company’s local markets in particular, such as beauty product company Kao Corporation.
This dominant position has allowed the business to increase its dividend by 10 per cent a year over the last 30 years.
Another cosmetics firm, Shiseido (8 per cent of the fund), contributes strongly partly due to the popularity of its products with Chinese visitors. Chinese holidaymakers are pouring into Japan, with numbers up from six million to 20million over the last five years, according to Lindsell. He says: ‘This is fuelling purchases of high quality Japanese goods such as Shiseido products.’
The Japanese taste for green tea has also sparked a boom in purchases of the canned and bottled variety. The drinks giant Ito En (5 per cent of the fund) dominates this market.
It is also a games-mad population, which is why Nintendo, with its long established menu of games such as Super Mario and Pokemon, features large.
Nintendo’s share price has had a rocky ride lately because of concerns that it would not be able to repeat the strong sales last year of its Switch console.
Lindsell says: ‘Sales targets have not been met so far but the biggest period for sales is the run-up to Christmas. I think it will meet its targets.’
In any case he will hold on as he takes a 20 to 30-year view.
Tilney’s Hollands praises Lindsell’s fund for ‘consistently outperforming the Japanese market despite the fact it has traditionally been one where “value” managers are already performing well’.