The discount on Nippon Active Value Fund’s (LON: NAVF) shares has tightened sharply this year, reflecting renewed investor confidence in the trust’s activist approach and continued outperformance against Japan’s equity benchmarks.

In the Q1 2025 update below, Gifford Coombs and Paul ffolkes Davis update investors on progress made in Q1 with a particular focus on events at Fuji Media Holdings

The London-listed investment trust, which targets undervalued Japanese small and mid-cap companies, has seen its discount to net asset value (NAV) narrow from roughly 10% at the start of 2025 to around 3% in its latest update, according to data from Fidelity. At times over the summer, the shares briefly traded at a premium to NAV, marking one of the tightest valuations since the fund’s launch in 2020.

At 30 September 2025, the trust’s NAV stood at 225.2p, while its share price traded near 218p, equating to a 3.1% discount. Over the past six months, the average discount has been just 2.3 per cent, compared with an average of more than 5% in 2023, according to the Association of Investment Companies (AIC).

The trust’s narrowing discount reflects both strong investment performance and heightened investor interest in its activist strategy. Over the year to June 2025, Nippon Active Value’s NAV rose 7.6%, with its share price gaining 8.5 per cent, according to the AIC. Since launch, the trust has delivered a total NAV return of more than 100%, far exceeding the MSCI Japan Index’s 39 per cent over the same period.

The fund’s campaign for governance reform at Fuji Media Holdings, one of Japan’s most prominent media conglomerates, has drawn attention to its activist credentials. The fund recently increased its stake to over 7.5% and has pressed for independent board appointments following a series of corporate governance controversies.

“Investors have begun to price in the credibility of Nippon Active Value’s activism,” said one analyst at a UK investment trust research house. “The narrowing discount shows that shareholders increasingly view these campaigns as catalysts for unlocking hidden value in Japan Inc.”

The fund has also supported sentiment by issuing new shares at a premium to NAV, including a tap issue of 1.09 million shares at 225.9p in August – an indication of strong demand from investors.

However, volatility remains a feature of the trust’s share price. Earlier this year, the discount briefly widened to about 9 per cent amid broader weakness in Japanese equities before recovering over the summer months.

The fund’s board has emphasised that maintaining a narrow discount remains a priority. “Our consistent communication with investors and track record of outperformance have contributed to the improvement in the share rating,” it said in its 2024 annual report.

Analysts say that the trajectory of the discount will depend on the trust’s continued success in driving corporate change in Japan. “If Nippon Active Value can sustain its activist wins, it could become one of the few Japan-focused trusts to trade persistently at or above NAV,” the analyst added.