Zennor Asset Management has launched the LF Zennor Japan Equity Income Fund to capitalize on a growing opportunity for income investors, driven by the ongoing governance revolution that is reinvigorating corporate Japan.
Key points
- New stock market rules increase pressure on Japanese companies to return more capital to shareholders.
- Provides a tailwind for higher dividends and more share buybacks
- Over half of the companies listed on Topix have net cash on their balance sheets
- The Fund’s managers have combined experience of 50+ years running money in Japan
The new fund will be managed by highly experienced Japan fund managers James Salter and David Mitchinson. The duo will aim to deliver a meaningful and growing level of income, whilst preserving and growing capital by investing in overlooked, underachieving, and mispriced companies, where there is a clear catalyst for change.
“This is a story unique to Japan. Companies are under increasing pressure to reshape and shrink their balance sheets, which are in many cases in rude health. This is providing a very powerful tailwind for dividends and share buybacks – and is likely to have a positive impact on share prices too. We have earmarked many companies under the radar of mainstream global funds, where we expect the growth in dividends over the next three to five years to be much higher than the growth in earnings.”
James Salter, Zennor founder and CIO.
The launch of the UK-domiciled OEIC comes with the ongoing corporate change in Japan gathering pace following moves this year by the Tokyo Stock Exchange to encourage listed companies to improve their disclosure, reporting, and governance structure. Additionally, they have asked companies to disclose their cost of capital and introduced new rules after demanding concrete action from companies that persistently trade below book value. To improve their returns, many companies need to stop their balance sheets from growing and look to shrink their asset bases. Zennor believes such action will include increasing dividend pay-outs, embarking on share buybacks, or investing to expand operations.
Unlike their Western counterparts, many of Japan’s companies are awash with cash and able to meaningfully increase dividends. More than half of Japanese companies listed on the Topix have net cash on their balance sheets compared to around 20 percent of companies on the S&P500 and FTSE All-Share. And not only do they have significant cash – they also have lots of historic investment securities and unrealized gains on land, which has in many cases been on the balance sheets for more than a century.
“The perception that nothing ever changes in Japan is no longer true. We have managed money in Japan since the 1990s and are finally witnessing meaningful long-term change. As companies reshape their capital structures to an appropriate level, there is a compelling opportunity for investors, particularly income-seeking ones, to benefit from that change.”
David Mitchinson, Zennor co-founder and fund manager.
In establishing the LF Zennor Japan Equity Income Fund, Zennor has partnered with independent distributor Spring Capital Partners to bring the fund to the attention of fund buyers and asset allocators, and Link Fund Solutions to oversee the fund’s administration.
“We are excited to be launching the LF Zennor Japan Equity Income Fund and partnered with such an experienced fund management team, at a time of growing interest in Japanese equities”.
Malcolm Arthur, founder and director at Spring.
“We are delighted to have partnered with Zennor Asset Management to establish and launch the LF Zennor Japan Equity Income Fund. We recognise the fund launch as a key milestone for Zennor and look forward to bringing our extensive resources to bear in supporting its future growth.”
Karl Midl, chief executive at Link.
