In this series of short profiles, we ask leading fund managers to defend their investment strategies, reveal their views on cryptocurrency, and tell us what they'd never buy.
This week our interviewee is Nicholas Weindling, portfolio manager of the Morningstar Gold-rated JPMorgan Japanese Investment Trust (JFJ).
Which Sector Shows The Biggest Promise in 2022?
Despite some short-term market uncertainties, we are positive about the longer-term outlook for Japan. The corporate governance story continues to develop, with more and more Japanese companies focusing on increasing the number of outside directors, paying higher dividends and implementing share buybacks to return capital to shareholders. The associated benefits are now widely recognised by the market and increasingly look structural in nature. Moreover, Japan’s Prime Minister Fumio Kishida, who was elected in September 2021, remains popular and we expect Japan’s political landscape to remain stable for the foreseeable future.
A feature of the sell-off in 2022 has been the fall in the share prices of the highest quality businesses. These are established companies in industries with long growth runways enjoying high profitability, excellent free cash flow and strong balance sheets. In some cases the investment case has actually become stronger. One example is automation where rising wages in the United States and elsewhere make the arguments in favour of using robots more compelling. It is an ideal time to be looking at world leading businesses such as these which are at the heart of Japan’s new growth.
What's The Biggest Economic Risk Today?
We are closely monitoring the impact of the ongoing war on Japanese markets. Though Japan procures less than 10% of its liquefied natural gas imports from Russia, it will feel the indirect effects, particularly through rising energy prices.
Describe Your Investment Strategy
For the JPMorgan Japanese Investment Trust, we seek to uncover the most exciting opportunities in an under-researched market. Using the unique insights from our portfolio management team and analysts based in Tokyo, we create a portfolio of higher quality and growth companies highlighted by our bottom-up fundamental research.
Which Famous Investor Do You Admire?
The simplicity and clarity of how Terry Smith invests is impressive.
Name Your Favourite "Forever Stock"
Tough to call a ‘forever stock’ as we are constantly reviewing the case for our holdings but there are some long-term themes that we are confident in. For example, Japan is a very advanced country in some respects but, perhaps surprisingly, it lags in others. A prime example is e-commerce where the penetration of online shopping is lower than in many developed nations. Similarly, the percentage of cashless transactions is very low compared to the UK.
As such, for the long-term, we continue to be admirers of GMO Payment Gateway, which is a leading provider of processing services for online commerce and credit card transactions. With the onset of the pandemic accelerating many digital trends such as cashless payments, we believe GMO Payment Gateway is well positioned to tap into the growing opportunities in the sector.
What Would You Never Invest In?
Companies I don’t fully believe in.
Growth or Value?
Our investment approach emphasises individual stock selection to build a portfolio of quality growth stocks with strong future growth prospects.
House or Pension?
Pension.
What Are Your Thoughts on Crypto?
I only invest in things I understand so, thus far, crypto is not for me.
What Can be Done to Increase Diversity in Fund Management?
Diversity comes in many forms but ultimately, investment teams make better decisions when various points of view are considered. I am so proud that in my team, we have nine different nationalities and a diverse range of voices.
Have You Ever Engaged With a Company and Been Particularly Proud (or Disappointed) in the Outcome?
In Japan there is nothing short of a shareholder return revolution. For years many Japanese companies have sat on large net cash positions leading to inefficient balance sheets. We are now seeing change at some of the most conservative companies. It is not only JPMAM which is engaging but the cumulative engagement from both domestic and foreign investors is now being rewarded. It is exciting to see share buybacks up 65% year-on-year in Japan to a record high but there is much more to go for with 50% of non-financial companies being net cash.
What's The Best Bit of Advice You’ve Ever Been Given?
Better to be a bull and wrong than a bear and right. Fund managers often focus on risks, but we should remember that a stock has unlimited upside but can only fall to zero.
What Would You Be if You Weren’t a Fund Manager?
I studied History at university and was fascinated by foreign policy so a career in the Foreign Office always appealed.
