Schroder Japan Trust plc: Finding value in Japan’s AI supply chain

Ibiden’s appeal goes beyond its improving market position, however. The company is also an example of the corporate governance reforms that are driving better performance from Japanese businesses more broadly. A leadership transition last year was handled smoothly, with a long-serving internal executive appointed CEO to steer the business through its next phase of growth. Ibiden is also actively selling down its legacy cross-shareholdings – improving capital efficiency and aligning with investor interests – in line with the broader corporate governance improvements reshaping the market.

The broader appeal of exposure to Japan

These developments reflect wider shifts taking place in Japan. Structural reform continues to progress, shareholder returns are improving, and corporate fundamentals are benefiting from a more favourable macroeconomic backdrop. Inflation – long absent from Japan’s economy – has returned, helping to support pricing power and break the grip of deflationary expectations. For investors, that’s a significant positive development. But for households, the effects are more nuanced. Rising food prices, in particular, have become politically sensitive – contributing to a decline in public support for the ruling Liberal Democratic Party (LDP).

That discontent was brought into sharp focus in Japan’s Upper House elections earlier this month. For the first time since 1955, the LDP no longer holds a majority in either chamber of Japan’s parliament. This marks a significant moment in Japanese politics and introduces a degree of policy uncertainty.

Nevertheless, it does not undermine the underlying investment case for Japan. As well as the governance reforms and improving macro fundamentals, Japan remains a large, liquid, but relatively inefficient equity market – particularly in the small and mid-cap space – where active management can add real value.

With selective exposure to exciting stocks such as Ibiden – and a disciplined focus on valuation and long-term fundamentals across the portfolio – we are confident that Schroder Japan is well positioned to capture the opportunity that lies ahead.

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_{Risk considerations – Schroder Japan Trust plc:}

_{Concentration risk: The fund may be concentrated in a limited number of geographical regions, industry sectors, markets and/or individual positions. This may result in large changes in the value of the fund, both up or down.}

_{Counterparty risk: The fund may have contractual agreements with counterparties. If a counterparty is unable to fulfil their obligations, the sum that they owe to the fund may be lost in part or in whole.}

_{Currency risk: If the fund’s investments are denominated in currencies different to the fund’s base currency, the fund may lose value as a result of movements in foreign exchange rates, otherwise known as currency rates. If the investor holds a share class in a different currency to the base currency of the fund, investors may be exposed to losses as a result of movements in currency rates.}

_{Derivatives risk: Derivatives, which are financial instruments deriving their value from an underlying asset, may be used for investment purposes and/ or to manage the portfolio efficiently. A derivative may not perform as expected, may create losses greater than the cost of the derivative and may result in losses to the fund.}

_{Liquidity risk: The fund invests in illiquid instruments, which are harder to sell. Illiquidity increases the risks that the fund will be unable to sell its holdings in a timely manner in order to meet its financial obligations at a given point in time. It may also mean that there could be delays in investing committed capital into the asset class.}

_{Market risk: The value of investments can go up and down and an investor may not get back the amount initially invested.}

_{Operational risk: Operational processes, including those related to the safekeeping of assets, may fail. This may result in losses to the fund.}

_{Performance risk: Investment objectives express an intended result but there is no guarantee that such a result will be achieved. Depending on market conditions and the macro economic environment, investment objectives may become more difficult to achieve.}

_{Smaller companies risk: Smaller companies generally carry greater liquidity risk than larger companies, meaning they are harder to buy and sell, and they may also fluctuate in value to a greater extent.}

_{Gearing risk:The fund may borrow money to make further investments, this is known as gearing. Gearing will increase returns if the value of the investments purchased increase by more than the cost of borrowing, or reduce returns if they fail to do so. In falling markets, the whole of the value in that investment could be lost, which would result in losses to the fund.}

_{Capital Erosion: As a result of fees being charged to capital, the distributable income of the fund may be higher, but there is the potential that performance or capital value may be eroded.}

_{The price of shares in the Company is determined by market supply and demand, and this may be different to the net asset value of the Company. This means the price may be volatile, meaning the price may go up and down to a greater extent in response to changes in demand.}

_{We recommend you seek financial advice from an Independent Adviser before making an investment decision. If you don’t already have an Adviser, you can find one at www.unbiased.co.uk or www.vouchedfor.co.uk.}

_{Before investing in an Investment Trust, the latest Key Information Document (KID) at www.schroders.co.uk/investor or on request.}

_{For help in understanding any terms used, please visit address https://www.schroders.com/en-gb/uk/individual/glossary/.}