Fidelity Japan Trust is the latest in the asset manager’s stable to seek permission to boost exposure to unlisted holdings.
The £309.2m trust currently can hold up to 10% in private companies but portfolio manager Nicholas Price (pictured) would like to increase this limit to 20%. At the end of December, he had holdings in six unquoteds, accounting for 5% of the portfolio.
Last year, Fidelity China Special Situations successfully boosted its unlisted exposure from 10% to 15%.
“From a bottom-up perspective, we are seeing a lot more entrepreneurial activity in Japan compared with five to 10 years ago,” Price explained, adding that a number of new growth companies were coming through, creating opportunities in the initial public offering (IPO) market.
See also: Trailblazer Scottish Mortgage sparks trend of equity trusts upping unlisted exposure
Fidelity Japan boosted by 350% write-up for Coconala
Last year, there were 125 IPOs in Japan, the highest level since 2006. Around 70% were for companies in the information and communication technology and services sectors, which Price said reflects growth in trends like artificial intelligence and software licensing on a subscription basis.
Two of his own holdings, Coconala and Photosynth, floated on the Tokyo Stock Exchange (Topix) in 2021, with the former enjoying a 350% boost to valuation. Despite the strong debut, Coconala’s shares have been treading water thanks to the January tech sell-off and turbulence from the war in Ukraine and have more than halved year-to-date. Photosynth shares have fallen by a similar amount.
“Being on the ground in Japan, and seeing many different companies, means that we are well placed to help entrepreneurs in the latter stages of their pre-IPO journey,” Price said.
Russia/Ukraine conflict has put a damper on 2022 outlook
Fidelity Japan recorded a share price total return of 3.9% for the year to 31 December 2021, higher than the Topix’s 2% gains. Net asset value per share grew by 1.8%.
Though the Japanese market started the year off strong, concerns over US tapering, rising oil prices and the spread of Omicron eventually took their toll on stock prices.
Mitsui High-tec, which makes parts for motors in electric vehicles, was the “standout contributor” to the company’s performance over the period; while Misumi, a manufacturer and distributor of factory automation and metal die components, also made a “material contribution”.
Looking ahead, Price struck a cautious tone. Promises by prime minister Fumio Kishida for a “new capitalism”, including tax breaks for companies that raise wages, is unlikely to have much impact in the absence of greater reforms, he said.
Meanwhile Russia’s invasion of Ukraine is creating further headwinds for households and corporates, thanks to surging commodity prices.
However, he added: “The direct impact of Russia’s invasion of Ukraine on portfolio holdings is relatively limited and there has not been a significant change in terms of positioning”.
