FJV: recent performance into perspective

As we outlined in our initiation, FJV has a long-term track record of outperforming UK markets, UK-listed competition, UK open-ended peers and Japanese benchmarks. The main drivers are structural, including its investment processes, flexible mandate and active management. However, as we noted in the initiation, FJV can see temporary periods of underperformance when its investment approach is out of favour. During the current manager’s mandate, these episodes, typically, have been around a quarter, and, immediately after, there has been significant outperformance. We put FJV’s recent performance into this historical perspective.

• Long-term outperformance: Since the manager’s appointment in September 2015, FJV’s total share price return has been broadly double that of benchmarks/peers. Importantly, this has been delivered by sustainable market drivers and company-specific factors, such as its investment process and mandate.
• Previous corrections: We note the approach has seen previous periods of underperformance driven by factors, which, in the past, have proved temporary (typically, lasting a quarter or so). In 2020, the subsequent outperformance over the following quarter was three times the level of the market.
• Valuation: 96% of investments are listed in active markets. While some may have a degree of illiquidity, the NAV is “real”. The discount of 6% is above the average of recent levels, but it is slightly above that of its peers, whom FJV has materially outperformed over five years. FJV is run for capital growth.
• Risks: FJV has seen periods of short-term underperformance, when its investment style has been out of favour – typically, when the market has undergone a sharp factor rotation. Recovery has usually been swift. COVID-19 is uncertain, with rising cases from a low base. There are also some Japan sentiment issues.
• Investment summary: FJV has outperformed its peers, benchmarks and UK indices, with a distinctive and active investment approach. Its companies show faster-than-average revenue and EBITDA growth (ca.2x and 3x the market, respectively), and have higher ROEs and ROICs (both around one third above the market). It invests for “growth at a reasonable price” – so company valuations can be higher. With an active approach, investors are buying FJV’s investment process, not its portfolio on a given day. Japan offers tech-enabled growth and structural reforms, and is levered to global trade. Its approach can be out of favour, but, under the manager’s tenure, underperformance periods have been short.