Nippon Active Value Fund seeks opportunities beyond Japan’s AI-led rally
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Nippon Active Value Fund has argued that pockets of Japan’s equity market still offer attractive opportunities despite a sharp rally in Japanese shares this year, as investors have concentrated on artificial intelligence and other large-cap growth themes.
The London-listed investment company delivered a 5.2% total return in sterling in the six months to the end of June, compared with a much stronger performance from Japan’s headline Nikkei 225 index. In yen terms, NAVF’s net asset value rose 7.5% over the period.
The disparity reflects the increasingly narrow nature of the Japanese market rally. The fund’s investment adviser said the Nikkei 225 had risen by roughly 40% during the first half of the year, passing 70,000 for the first time, while the broader TOPIX gained about 14.1 per cent in sterling terms.
NAVF, which concentrates on undervalued Japanese companies, has instead maintained a focus on smaller and medium-sized businesses, where it argues that corporate governance reforms and management changes can unlock value. The fund said these companies remained its principal area of focus.
Its performance since launch in February 2020 remains substantially stronger than the first-half figure suggests. NAVF reported a cumulative sterling total return of 152.3% since inception, equivalent to an annualised return of 15.5%.
The fund’s management nevertheless acknowledged that the market’s enthusiasm for AI and other highly visible themes had made the environment more challenging. Its chairman said the investment adviser continued to find “plenty of opportunities” while investor attention was elsewhere, and expected this to contribute to renewed outperformance over the medium term.
For investors, the central question is therefore less whether Japan’s market can continue to rise than whether the gains can broaden beyond the stocks and sectors that have so far dominated the rally. NAVF is positioning itself for precisely that shift, betting that the market’s less fashionable companies can catch up as attention moves beyond the AI boom.