Asian markets including Japan have been caught-up in the sell-off triggered by Trump’s tariffs war, but the Japanese economy should be less directly affected by the proposed levies than both China and Europe. And the outlook for the ‘Land of the Rising Sun’ remains rosy thanks to positive inflation, rising wages and the ongoing drive by the Japanese government, regulators and investors to change the country’s corporate culture, which is having a beneficial impact on capital efficiency and corporate governance standards.
One great way to capture the capital growth and rising dividends on offer from Japan’s high-quality, cash generative and increasingly shareholder-friendly corporates is to buy CC Japan Income & Growth (CCJI), currently trading at a 9.7% discount to NAV (net asset value) that presents a compelling entry point for investors willing to stomach currency risk.
Awarded a five-star rating by Morningstar, CC Japan Income & Growth is the best five-year share price total return performer in the Association of Investment Companies’ Japan sector with a 95% haul. And while Japan’s stock market could experience further bouts of volatility, this trust’s balanced focus on total return - i.e. capital and income growth – gives the fund a more defensive bent than growth-focused peers and it should prove less susceptible to style rotations as a result. Ongoing charges are 1.03%.
DIFFERENTIATED APPROACH
Managed by Chikara Investments’ seasoned Japanese equities sage Richard Aston, CC Japan Income & Growth offers a differentiated approach for patient portfolio builders seeking Japanese equity market exposure, since the trust targets dividend income combined with capital growth.
Since its 2015 launch, the trust has outperformed the TOPIX index thanks to the stockpicking skills of Aston, who seeks out Japanese companies that pay dividends, are buying back stock, yet still offer strong growth potential. Aston’s portfolio tends to diverge strongly from major Japanese equity indices since the manager looks for opportunities beyond just the largest companies.
The £246.6 million cap typically holds a relatively small number of stocks and this approach has paid off handsomely over time. CC Japan Income & Growth is committed to providing a progressive dividend to shareholders and has maintained an unbroken track record of consecutive annual dividend increases since inception.
Despite the unpredictability of future Bank of Japan actions and the impact of tariffs on Asian markets and economies, the Japanese equity market’s fundamental attractions remain, namely low valuations, corporate governance reforms and broader growth opportunities. The improvements in corporate governance are playing a pivotal role in transforming Japan’s dividend culture and many of the trust’s underlying holdings are placing a much stronger emphasis on enhancing shareholder returns.
DIVIDEND GROWTH CORE
Aston runs a portfolio of between 30 to 40 holdings – 37 names in the book as at 28 February 2025 – and portfolio stocks sit within three broad categories: Dividend Growth, Special Situations and Stable Yield.
The bulk of the portfolio is within Dividend Growth, and includes banks such as Sumitomo Mitsui Financial (8316:TYO) and Mitsubishi UFJ Financial (8306:TYO), as well as insurers Sompo (8630:TYO) and Tokio Marine (8766:TYO), financial companies which have benefited from the Bank of Japan’s first rate hikes in 17 years.
Stable Yield examples include Softbank Corp (9434:TYO), while Special Situations include the trust’s biggest holding, console and handheld gaming giant Nintendo (7974:TYO), whose outlook is driven by the company’s own unique product cycle and which is going through a transition from the successful Switch console to the Switch 2.
Aston also highlights the recently-listed Tokyo Metro (9023:TYO), operator of the capital city’s underground rail network, as another Special Situation. ‘It hasn’t got a five year history, but if it did, it would see dividend growth each year,’ enthuses Aston. ‘I am very confident of the outlook for Tokyo Metro and it’s a great thing that we had the opportunity to invest in it.’
Prospective investors are also buying exposure to companies including Japanese online fashion retailer ZOZO (3092:TYO) and JAFCO (8595:TYO), the nation’s leading venture capital investment business, two firms returning value to shareholders through increased payout ratios, more consistent share buybacks and dividends.
Relatively new investments include Japan Securities Finance (8511:TYO), a vital component of the daily operation of Japan’s financial exchanges, and Macnica (3132:TYO), an electronics and software distributor well-placed to help satisfy growing global demand for Japan’s semiconductor capabilities.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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