Boots on the ground in a vibrant market

The trust pursues a first-hand view of new ideas that are coming to market, says Nicholas Price, Portfolio Manager of Fidelity Japan Trust PLC.

I have a deep interest in understanding how cultural differences shape the way in which companies are run across the globe. In many ways, this naturally led me to Japan, as companies here can have different management styles and business models to those in the West. 

In recent years, there has been a resurgence of interest in investing in Japan. One of the key drivers of this has been a change in corporate mindsets and a greater focus by the management of Japanese-listed companies on creating value for minority shareholders. 

This has been brought about by policies designed to encourage greater capital efficiency and returns on equity. Shareholder returns have been boosted, which has in turn encouraged investment from overseas – lifting the Japanese market as a whole.

Unearthing gems

When investing, I deploy a ‘growth at reasonable price’ investment style and approach. This involves identifying companies whose growth prospects are underappreciated or not fully recognised by other investors. 

I have a stylistic bias towards smaller and medium-sized companies because they tend to be less researched and are therefore more likely to be mispriced, though larger companies aren’t excluded. A key part of my investment process is detecting signs of change in a company’s fundamental strengths (such as balance sheet or sales), its market or regulatory environment, sentiment and valuations. 

Among the most appealing aspects of managing an investment trust portfolio is the ability to invest in companies which have not yet listed. We typically see around 100 initial public offerings (IPOs) per year in Japan. Being on the ground means that we see a lot of the new ideas and business models that are coming to market first-hand. 

What we have also seen in recent years is that the number of analysts actively covering Japanese markets has consistently declined, which creates opportunities for bottom-up managers like me, who are willing to do the leg work and identify the most attractive investment cases. 

Turning over new stones

It was an insatiable sense of curiosity that first led me to Fidelity and into fund management. My eyes were opened by Peter Lynch, an American investor and former Fidelity employee, whose book titled One Up on Wall Street got me hooked on the world of investing. It really highlighted the importance of company research and turning over a lot of stones every day to find new investment ideas. 

I was born in the UK but have been based in Tokyo for more than 30 years. I’m fluent in Japanese, having studied at Keio University, and this is a huge advantage when meeting the key decision-makers at the companies I invest in and when scouting for new ideas on the ground. 

For me, it’s all about joining the dots between different ideas and forming a new line of enquiry. I focus on gathering multiple information sources: from attending industry conferences to visiting university professors, and talking to unlisted companies or consulting senior management. You just need to keep researching until you gain reasonable conviction in the investment thesis.

Important information

The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Fidelity Japan Trust PLC invests more heavily than others in smaller companies, which can carry a higher risk because their share prices may be more volatile than those of larger companies and the securities are often less liquid. Changes in currency exchange rates may affect the value of investments in overseas markets. The shares in the investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. This investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser. Investors should note that the views expressed may no longer be current and may have already been acted upon. UKM0324/386491/SSO/0924 B