There was a lot of material to squeeze in to this month's newsletter, which comes out this weekend, so we were forced to cut this article on CCJI, which we publish here instead.
CC JAPAN INCOME & GROWTH TRUST (CCJI, 190.25p)
Richard Aston, the manager of CCJI, provided an update after the trust’s final results for the year ended 31st October were announced on 22nd January. Of course they are history now, but for the record the NAV total return for the year was 16.1%, ahead of the TOPIX total return index, up 13.4%. Since inception to 31st October 2024 the trust’s NAV total return was 152.5%, again well ahead of the TOPIX index +100.6%.
CCJI is perhaps less well-known than most Japanese trusts, a £280m trust launched in 2015 that is managed by a team of three at Chikara Investments (formerly Coupland Cardiff). Chikara means ‘strength’ in Japanese. As the name suggests, the trust aims for a combination of capital return and dividend growth. Valuation, cashflow and governance are all important factors for the managers, and they see considerable excess cash flow now being returned to shareholders through dividends and buybacks. Richard says the current position of improved governance has been many years in the making and that corporate culture is slowly changing. The introduction of initiatives by the Tokyo Stock Exchange in 2023 to raise awareness of the cost of capital and improve the quality of governance have been part of a much broader shift but have worked well to have what Richard says is a “very, very significant impact on the market.”
The managers look for established growth businesses that are focused on shareholder returns, at reasonable valuations. It is a concentrated portfolio of 39 companies from across the market capitalisation spectrum that can deliver both growth and income, and these tend to be held for an average of about five years. Holdings include Shoei, Sumitomo Mitsui Financial, Nippon Parking Development, Nintendo, Softbank Group, and Tokio Marine. The managers do engage with the companies, but not in an aggressive activist way – the approach here is more about benefiting from changes that good companies are already making. Richard says “the opportunity now in many ways is more exciting than it was when we first established” because of accelerating changes in governance that mean more buybacks and improvements in capital efficiency. More companies have net cash on their balance sheets, so Richard feels there is much more to come. He says “the potential for further improvement is very evident.” The trust’s dividend has been growing each year, up to 5.45p for the year just ended, and this definitely differentiates the trust in a group where dividends are generally fairly nominal. The yield here is not high at 2.9%, but it is the highest of the peer group by some margin. No derivatives are used to boost income, although the trust does have 20% gearing using CFDs.
CCJI looks like a reasonable choice in the sector if you are looking for a sensibly-managed trust to provide a mix of growth and income. The discount to NAV is the narrowest of the peer group though at 9.5%, and our preference still rests with Schroder Japan Trust (SJG, 254.5p), on a 13.2% discount. We note that the Bank of Japan has raised interest rates again, which could help to put a floor under the yen. A turn in the exchange rate would be very helpful for sterling investors who have been disadvantaged by the currency headwind for most of the last five years.
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