New holding: Fidelity Japan Trust

Fidelity Japan Trust (FJV.L FTSE Small Cap, Market capitalisation £222m, 164p, 1.0% of JIC Portfolio and 0.0% of JIC Top 10)   

New holding! 

I have bought a 1.0% holding today. A 1.0% holding because that is all the cash I have left in the Portfolio. Within the next two weeks I will take it up to 3.0% but just have to figure out how to fund it!

When it gets to 3.0%, I will have approximately 10.0% of the Portfolio in Japan which, for the fourth quarter of 2018, I think will serve the Portfolio well.

Last week the Nikkei 225 broke out to its highest level since November 1991. It still has another 60% to go to reach the all-time high achieved in 1989.

The bull case  for Japan rests on it, at long last, achieving decent economic growth and attractive equity valuations. After growth in Q2 running at an annualised 1.9%, Morgan Stanley is projecting 17.0% growth over the next six years. Pre-tax profit margins expanded from 4.5% to 7.7% over the last five years and with productivity forecast to grow, margins should widen further.

Other encouraging factors are that unemployment has halved to just 2.3% over the last eight years leading to the strongest wage growth for more than 20 years. That should be good for consumption. Japanese companies are amongst the leaders in robotics and AI and with a tight jobs market companies are expected to increase spending in this area, which should again be good for profitability.

On valuation, MoneyWeek points out that the forward price earnings ratio for the average Japanese company is just 12 times which compares with 17 times in the US and Europe.

I have chosen Fidelity Japan Trust as it stands on an 11.0% discount to NAV but has performed well against its competitors over the last one, two and three years. I love Baillie Gifford Shin Nippon and its exposure to smaller Japanese companies but think 7.0% in this trust is probably sufficient.

Lots of information on investment trusts including Fidelity Japan Values at www.trustnet.com

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