Nippon Active Value has released its annual Financial Report for the 12 month period ending 31 December 2024. Highlighats are as follows

• Net Assets – £365.4m (Dec 2023: £319.9m)
• NAV per share – 193.2p (Dec 2023: 169.2p)
• Share price discount to NAV – 3% (Dec 2023: 4.2%)
• Ongoing charges: 1.18% (Dec 2023: 1.17%)

PERFORMANCE SUMMARY

• NAV total return per Share – +15.2% (Dec 2023: +23.1%)
• Share price total return per Share – +16.8% (Dec 2023: +41.1%)
• MSCI Japan Small Cap index – +6.8% (Dec 2023: +7.8%)

Chairman Rosemary Morgan added:

At the end of the year, net assets were £365.4 million and the net asset value (‘NAV’) per share was 193.2p, a rise of +15.2% over the year and a cumulative increase of +103.8% since the Company’s launch on 21 February 2020. While we do not target a particular index benchmark, for comparison the MSCI Japan Small Cap Index returned +6.8% in sterling terms over the year and +23.7% since launch. All returns assume dividends were reinvested. The Company now has a five-year track record with an annualised return of 15.5%.

The closing share price on 31 December 2024 was 187.5p, a discount of 3.0% to NAV. The average discount to NAV over the year was 3.9% and the shares traded in a range of a premium of 0.7% to a discount of 8.7%. The discount stood at 9.0% as at 31 March 2025, being the latest practicable date.

Global developed markets had another strong year, led by US stocks and within that market the large technology companies in particular. The large-cap Japanese index was the second best performing amongst major markets: the Tokyo Stock Exchange Price Index (‘Topix’) reached new historic highs in July 2024, helped by growing confidence that the era of negative interest rates had ended and by global investors rebuilding their exposure to Japan, often in a reallocation away from China. The Bank of Japan (“BoJ”) raised the benchmark interest rate twice in 2024 and a third time, to 0.5%, in early January 2025. The yen has weakened in response, though was less of a drag on our sterling performance in 2024 than in preceding years. Our Investment Adviser does not hedge the currency, preferring to concentrate their efforts on identifying undervalued stocks and on engagement with corporate management rather than on macro-economic analysis.

OUR INVESTMENT APPROACH

Our Investment Adviser, Rising Sun Management (‘RSM’), with its presence on the ground in Tokyo and with its affiliate Dalton KK, continues to identify potential targets and the coverage of portfolio holdings.

As an activist manager, RSM is not seeking to reflect the market as a whole or the fundamentals of the broad Japanese economy. RSM’s strategy is to invest in a concentrated portfolio of undervalued companies with high quality businesses. Our Investment Adviser identifies areas in which to engage with management to improve shareholder returns, particularly around balance sheet management and capital allocation. In order to have some weight with management they need to build a significant stake, and as a result, the portfolio holdings tend to be in small to medium capitalised stocks. We have memoranda of understanding with other funds advised by RSM and Dalton Investments with whom we co-invest in opportunities to achieve greater scale. At the end of 2024, your Company held 29 investments, of which 26 were also owned by NAVF Select LLC and 21 by Dalton Investments.

Our Investment Adviser’s targets are generally good businesses, with strong cash flow and balance sheets, trading at a material discount to intrinsic value. They are looking for companies where an opportunity exists to improve the alignment of interest between management and minority holders. Most of the engagement with target companies is through letters and private meetings, though the Investment Adviser also makes formal proposals to annual general meetings when appropriate and occasionally chooses to publicise that engagement. The standard requests are to improve corporate governance through a more independent board, to demonstrate an alignment of interest with shareholders through a steady increase of directors’ investments in the company’s shares and, most importantly, to show evidence of a concrete plan to improve capital allocation and profitability over the next three to five years, in line with the Japan Exchange Group’s (‘JPX’) listing guidelines. Those guidelines have been amended and expanded over the last two years to emphasise profitability, transparency and liquidity. RSM also advocates the return of excess capital to shareholders, typically through buy-backs or increased dividends.

 

 

A video from the managers of Nippon is below – it was shot: