Japanese trust that rises above economic woes

THE threat of a global recession does not scare Tokyo-based fund manager Nicholas Weindling, even though many of the companies that comprise the Japanese stock market are acutely sensitive to changes in the health of the world economy.

Weindling, who has been managing investment trust JP Morgan Japanese for nearly 12 years, believes the portfolio he has built will withstand almost anything thrown at it.

This is because he side-steps so-called cyclical stocks that are heavily dependent upon economic fortunes and whose share prices are prone to fall sharply at the whiff of recession. It means no holdings in banks and little exposure to companies involved in fuelling the nation’s appetite for discretionary spending on big ticket items such as cars.

Instead, he prefers to hunt down ‘new types’ of company that he believes will thrive irrespective of economic boom or bust – maybe because they are either disrupting established business practices or prospering on the back of key societal change.

The result is a 58-strong portfolio that is devoid of most of the Japanese corporate names UK investors are familiar with – Mitsubishi, Nippon, Sony and Sumitomo. ‘Look at the companies that make up the trust’s portfolio,’ says Weindling, ‘and you will be lucky to know more than a handful. They’re unknown outside Japan although some have operations overseas, even in the UK. But what links them is that they have good growth runways, are early stage, and all have the ingredients to make them successful investments.’

Three themes underpin some of the companies Weindling invests in – artificial intelligence, tourism and an ageing population.

The trust’s biggest holding, Keyence, is a world leader in automation sensors that are used in production lines and are more reliable than humans in rejecting faulty goods. Weindling says that the sensors pay for themselves in terms of cost savings within two years.

He adds: ‘As wages rise and business margins come under pressure, automation will become the norm. For example, it’s tiny in China, but when it becomes a feature of production lines there, Keyence should be one of the beneficiaries.’ He has held the stock since 2012.

Tourism is booming in Japan and will continue to do so as a result of it staging the Rugby World Cup next month, followed by the Summer Olympics in 2020. But Weindling says the stronger theme is the influx of tourists from countries elsewhere in Asia – China, Indonesia, Taiwan and Vietnam – all with money to spend. Shiseido, a manufacturer of skincare products and a top 10 trust holding, is a beneficiary of this regional tourism as holidaymakers buy its ‘quality, reliable and safe’ products.

The final investment theme – an ageing population – is reflected in Recruit Holdings that attempts to marry up vacant jobs with an ever dwindling number of applicants – 100 applicants for every 160 jobs. ‘Recruit is the number one recruitment agency in Japan,’ says Weindling. ‘But it also has business operations in the United States and elsewhere.’

Over the past five years, the £885 million trust has delivered a total return of 116 per cent, compared with the 94 per cent return generated by the average Japanese fund.

Charges at 0.67 per cent a year are competitive. Weindling says the trust wants to remain on the ‘front foot’ by eliminating the 7 per cent discount that the shares currently trade at, compared to the value of its assets. The trust pays a small annual dividend of 1 per cent.