Portfolio Managers
The trust is managed by Richard Aston, Megumi Takayama, and Theo Wyld. Richard has been the lead manager since the launch of the trust, in December 2015.
Richard Aston
Portfolio Manager/Analyst
Megumi Takayama
Portfolio Manager/Analyst
Theo Wyld
Portfolio Manager/Analyst
Our aim:
To invest in financially sound, growing business that are making meaningful returns to shareholders.
Our desired output:
A portfolio that generates a strong total return throughout market cycles; capital growth complemented by a meaningful and rising stream of dividend income.
Why do we invest in this way?
If you are strict with your requirements for both financial soundness, i.e. strong balance sheets, and growth track record then you end up with a pool of companies with a proven ability to finance their own growth – an attractive quality. If you further restrict yourselves to those companies that are also able to distribute shareholder returns, then these are companies generating excess cash over and above that which they need to grow – an even more attractive quality.
Dividends are like rewards for patience and loyalty, a tangible expression of a company’s gratitude to its shareholders.
– Peter Lynch
It is important to note that we require these attributes of each and every holding. For example, we will not compromise on financial soundness in exchange for higher growth prospects.
We think there are three main benefits to investing in this way:
A high yield and a strong balance sheet can be tempting. But this could be masking a value destroying business. Reaching for yield can often come at the expense of capital growth - we prefer dividend growth to dividend levels.
Dividend paying companies tend to be less prone to boom and bust cycles and therefore deliver a more stable return through time. Areas of the market such as unprofitable, hyper-growth companies do not enter our universe. The desire to offer a dividend yield on the portfolio significantly above the market is its own additional valuation discipline.
Investing is humbling, mistakes are commonplace. Protecting the downside in those scenarios is just as important as participating in the upside. A company with a strong financial position provides support during the inevitable periods of tough conditions.
What does the portfolio look like?
This is a bottom-up strategy. To deliver outperformance you must be willing to differ meaningfully from the market, and concentration is a key determinant in this. Typically, the fund is invested in 35-40 holdings. This limit enforces a high hurdle for potential new investment opportunities to clear and prevents closet indexing. We manage the risk predominantly through careful stock specific analysis, but with a close eye on our exposures at a portfolio level.
Diversification, after all, is not how many different things you own, but how different the things you do own are in the risks they entail.
– Seth Klarman
This buy-and-hold approach is reflected in our relatively low turnover, and average holding period of around five years. We want to benefit from the power of compounding and to minimise the effects of market timing. We consider risk to be the probability of permanent capital loss, not volatility. Our longer-term view allows us to take advantage of others’ short-termism.
We invest in companies across the market capitalisation spectrum. Japan has over 4,000 listed companies and the vast majority are smaller in size. It is here where there can be significant rewards for the diligent investor. Sell-side coverage is thin, at best, and global investors are few and far between. Japan is an excellent place to be an active investor.
What are the benefits of a trust structure?
We can use gearing. At the launch of the trust in 2015, the Board put in place a gearing position of 20%. This was determined to be the appropriate level to meaningfully benefit from the structural growth opportunity in Japan, and that aligns with our long-term investment horizon. It also considers the financial soundness of the underlying holdings to ensure we are not adding leverage to leverage. The gearing has remained at 20% throughout the life of the trust – it is not used as a market timing tool. The Board conducts regular reviews of its continued appropriateness. The gearing has two main potential benefits:
It can boost the dividend yield.
It can boost the capital return.
The permanent capital nature of the trust also allows us to selectively invest in companies that would be deemed too illiquid in an open-ended vehicle. Though, for risk management purposes, these kinds of companies are restricted to small positions.