AVI Japan Opportunity Trust PLC Kepler Trust Intelligence: New Research

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AVI Japan Opportunity Trust PLC

18 April 2019

AVI Japan Opportunity Trust: New research

18/04/19

-- AJOT invests in Japanese small caps, taking advantage of extremely low valuations and using shareholder activism

-- Since launching in late 2018, several successful corporate actions have suggested the investment case was correct

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AVI Japan Opportunity (AJOT) invests in Japanese small-cap stocks, aiming to generate high long-term returns by taking advantage of extremely cheap valuations in that part of the market but also using shareholder activism to supercharge returns.

The GBP78m trust, launched in October 2018, is run by Joe Bauernfreund, also manager of the GBP900m British Empire Trust. Joe looks for asset-backed companies on low valuations where he can see a catalyst for a re-rating. In small cap Japan he has found what he believes is an outstanding opportunity. On a look-through basis, the companies in the portfolio have 78% of their market cap in cash or transferrable securities and are trading on 3.9 times EV/EBIT, compared to 8.7 times on the MSCI Japan Small Cap and 18.5 times on the S&P 1500 all-cap index.

AJOT is an activist investor and aims to take advantage of the political and regulatory pressure on Japanese companies to increase the efficiency of their balance sheets. One of the "three arrows" of Abenomics is policies for growth, and in part this means a determined push to put idle corporate cash and cross-shareholdings to more productive use and thereby boost shareholder returns.

In their view, AVI is therefore increasingly pushing on an open door. In the first six months of the trust's life it has seen nine of its 29 portfolio companies make shareholder friendly moves, be that paying or increasing a dividend, buying back shares or other measures. NAV performance has also been solid, with the trust up 0.3% compared to a 1.6% loss for the MSCI Japan Small Cap index, to the end of March. Although it was aided by it not being fully invested during the global market downturn in November and December, most of the outperformance came when it was fully invested, illustrating the success of the stock-picking.

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April 18, 2019 10:12 ET (14:12 GMT)