New position this week – AJOT.
Unusually for me this is an investment trust trading at a small premium to NAV- about a 4.5% premium. Something of a first for me – as regular readers will know I like a trust on a discount – but I am prepared to make an exception here. It’s my first decent sized new position in a while at about a 6% portfolio weight.
Asset Value investors are a value investment firm based in London who manage British Empire securities – I covered it a while back and should have bought some. They had realised that they were doing c20% a year in Japan with their activist / deep value realisation strategy and decided to launch a fund doing the same thing, focussing on it.
They have just applied for permission to list an additional 16m shares – or about 16%. Depending on how they do it this could benefit me as an existing shareholder, or give me the opportunity to buy a few more at closer to NAV.
Most of the readers of this blog will know Japan as where value investors go to die. It’s filled with companies with cross holdings greater than the underlying value of the holder, massive cash balances that have done nothing for the last 30 years. Investors who have tried to go to Japan face an insular corporate culture and a complete unwillingness to engage with shareholders. I am investing in this as I believe that this is going to change so Japan will be a better place to invest over the next 3/5/10 years.
The next question is why this one fund? There are other Japanese value funds available but this is the only one I know that is specifically activist / this deep value. There are hedge funds, but nothing I know of accessible to the ‘normal’ investor that does this.
I could buy individual Japanese stocks – and I wouldn’t rule it out completely – but google translate doesn’t work well in Japanese and it’s quite a way outside my comfort zone. It is also difficult / expensive for me to buy and tax inefficient as I can’t put them in my ISA.
So I have decided to buy some of this.
There are others out there who support my position that things are changing – see FT articles here and here. also nikkei. Lots of other things out there supporting this. I view prior false-dawns as a positive as it takes societies and businesses a long time to change direction.
Their latest factsheet is here.
Fees are a reasonable 1% of the lower of NAV / MCAP and size is a very small £95m. It is slightly geared.
Examples of what they hold are:
SK Kaken – 86bn yen cash 149bn market cap. They manufacture paint with about 7.8bn worth of earnings – so a very rough back-of-the-envelope cash adjusted 8PE.
Kato Sangyo – Market cap 124bn Yen, 117bn net asset value (mostly tangible) – its a food wholesale business.
A case study is here.
There is lots of this throughout Japan, relative to the capital chasing the opportunity – and it only takes a few ideas to pay off each year to get a decent return – their top 10 is 52% of their NAV.
Most probable risk to this is nothing happens and it just sits there. Japan has a horrible debt to GDP ratio of over 230% but this has been true for a very long time. It poses risks to me as a UK investor via the exchange rate and potential inflation risk. I am not too concerned – it’s unlikely to be a sudden move or something I won’t see coming. The exchange rate risk can also be hedged very easily. Also remember the Japanese government has many assets, so the net position isn’t as bad as it appears.
Part of the reason why I am investing here now is that I believe Japan wants to do something about its somewhat lack-luster performance so is going to make a change to drive higher returns. Details on this are available from the government of Japan – they actually say they will have better corporate governance. Issues with debt / very low growth are likely to make the nation as a whole more open to reform and more likely to stick at it this time.
As ever, comments appreciated.
Deep Value Investments Blog 
Hello good post. I am also curious about investment opportunities in Japan. You might be interested in this fund: “Japan Deep Value” . It follows a very similar strategy to AJOT, focusing in cash rich small caps. I attach a link bellow of them explaining their views.
Thanks Joel, I will take a look.
Hello Rob,
I have very recently taken three direct share investments in Japan, at eye-wateringly low valuations.
I lived in Tokyo for several years when I was a child and have always maintained an interest and contact with the country.
I took a look at the AJOT. And was pretty disappointed with their choice of companies; stolid and non-performing, to be sure, but worse, unlikely to out-perform, unless there’s a significant change in attitude and approach of local management, which is improbable.
Funnily enough, there are hundreds of stolid, non-performing plodders on the Japanese market, but AJOT , in my opinion, have not found those that are most likely to do well.
Hi Asset Value Investors have done 20% a year in Japan for a number of years. I trust them to invest as I know there is lots of opportunity in Japan but am not capable of finding it myself due to a somewhat impenetrable culture and a language that google translate doesnt like. Part of what they do is engage with management to get better performance. I will give them a year or two. What companies do you think are better than those AJOT holds?