Last month, Lindsell’s ¥29bn (£190m) Japanese equity fund just managed to outperform the Japanese stock market, producing 0.3% higher returns than the Topix Index’s 1.1%.
Over 2017, it returned 10% more than its benchmark, yielding 33.3% versus the latter’s 22.2%. Since its inception, its returns of 201.8% are nearly double those produced by Topix.
The performance came as somewhat of a surprise to lead manager Michael Lindsell, who co-founded investment house Lindsell Train alongside fellow heavyweight manager Nick Train.
“Rather surprisingly we outperformed the market in January,” he wrote in a note to investors. “For most of the month it seemed that lots of what we did not own was doing well, but in the end the market pulled back and Nintendo ended the month on a high.”
Video game powerhouse Nintendo, the fund’s largest holding at 10.2%, was the best performer last month, up 17% after a strong set of third quarter results in which its dividend forecast was raised 39% from ¥360 to ¥500.
“After a splendid year in 2017 we cautioned in an earlier report that for such heady returns to continue the company would have to bring home the bacon – to demonstrate higher cash returns,” Lindsell added. “Well, its strong third quarter results and revisions to its year end forecasts show that this is indeed happening.”
Because the firm’s dividend policy is linked directly to profits and cashflow, this is a tangible demonstration of better returns,” added Lindsell.
Similarly, top 10 holdings Kao and Shiseido, which make up 15.3% of total assets also brought good fortune to the fund, posting strong results and dividend hikes.
Chemical and cosmetics company Kao raised its dividend by 17% for 2017, following rises of 18% in 2015 and 14% in 2016. And the company has forecast another hike of 9% in 2019.
Skin and hair care firm, Shiseido, meanwhile, saw its shares gain 1.4% during January after reporting “sharply rising cash flows” from its restructuring initiative, resulting in a 38% increase in its dividend. Year-to-date, its shares are up 15% at ¥6,355 per share.
Even Canon, whose dividend has been stuck at the same level for four years due to flagging consumer demand for its cameras and printers, came through with a one-off dividend hike of 7% in its last annual dividend, “which we think the company should be able to maintain in the future”, said Lindsell.
While the remainder of the names in the portfolio have yet to report their existing dividend growth forecasts, Lindsell said he would “be surprised if there are to be any upsets”, adding that “there may even be more upward revisions”.
Lindsell said: “It means that in FY 2017 the current weighted average dividend growth of the portfolio companies is now 10% following a strong 26% hike last year (largely due to Nintendo’s outsized 187% increase). If nothing else, it at least proves some retrospective justification for the good performance of many of the shares in the portfolio over the last three years.”
