Schroders Plc · LSE:SDR
Schroders — Schroder Japan Trust — Investor Presentation (October 2023)
60 slides from Schroders's investor presentation, October 2023
Slide 1: Schroder Japan Trust plc
Schroder Japan Trust plc Masaki Taketsume, CFA, Fund Manager, Japanese Equities October 2023 Marketing material.
Slide 2: Key Features
Schroder Japan Trust plc Key Features Bottom-up, driven by in-house fundamental research Long-term time horizon, around 60 - 70 holdings, with low turnover Portfolio construction typically results in tilts to value and contrarian style Typically overweight in small cap Gearing range typically 10 - 1
Slide 3: Key Features: Opportunity sets
Schroder Japan Trust plc Key Features Opportunity sets: We typically identify performance drivers from three broad categories:- “Market Misperception” Companies with improving growth prospects through management effort, which are underestimated by other investors “Market Oversight” Undervalued compa
Slide 4: Portfolio Strategy
Schroder Japan Trust plc Portfolio Strategy Overweight Underweight “Market Misperception” Stocks lacking company-specific drivers Revaluation through management effort – Profits & valuations highly dependent on macro conditions, commodity Hitachi, Seven & i, Toyota Motor, and Rohm, etc. prices, etc.
Slide 5: Schroder Japan Trust plc performance
Schroder Japan Trust plc performance
Slide 6: Schroder Japan Trust plc - performance
Schroder Japan Trust plc - performance As at 30 September 2023 Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested. Fund size: £343.2m
Slide 7: Calendar year performance vs TOPIX
Schroder Japan Trust plc Returns in GBP 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) Trust Plcplc Schroder Japan Growth +21.5 -8.2 +5.7 +32.9 +7.0 +17.9 +23.0 +16.1 -12.7 +13.6 +3.8 +6.4 +.1 TSE 1st Section Index (TOPIX) +19.5 -
Slide 8: Strong record of long-term outperformance
Strong record of long-term outperformance As at 30 September 2023 Fund premium/discount¹ Relative performance vs. TOPIX2 170 250 160 200 150 150 140 100 130 50 120 10 5 110 0 -5 100 -10 -15 -20 90 -25 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Slide 9: Attribution – stock
Attribution – stock Schroder Japan Trust plc 12 Months to 30 September 2023 Top 5 contributors Portfolio weight Benchmark1 weight Portfolio return Benchmark1 return Total effect Sumitomo Mitsui Fg 3.8 1.3 68.8 68.8 +1.08 Ibiden Co Ltd 1.9 0.1 80.0 80.0 +0.92 T&D Holdings Inc 1.9 0.2 65.6 65.6 +0.72
Slide 10: How are we positioned and going to change the portfolio?
How are we positioned and going to change the portfolio? Value rally may have some more legs - still at a halfway to recover the relative devaluations seen for 2013-2020 Portfolio Actions Relative PBR MSCI Japan Value / MSCI Japan Growth 1 Underweighting growth sectors with 0.7 Max = 0.604 high valu
Slide 11: Sector positions – Top 10 and Bottom 10
Sector positions – Top 10 and Bottom 10 Schroder Japan Trust plc As at 30 September 2023 Portfolio (%) Benchmark1 (%) Underweight Overweight Machinery 10.0 5.3 4.7% Glass & Ceramics Products 4.5 0.7 3.8% Construction 4.7 2.1 2.6% Information & Communication 10.4 8.1 2.3% Insurance 4.7 2.4 2.3% Other
Slide 12: Stock positions – Top 10 and Bottom 10
Stock positions – Top 10 and Bottom 10 Schroder Japan Trust plc As at 30 September 2023 Portfolio (%) Benchmark1 (%) Underweight Overweight Sumitomo Mitsui Fg 4.3 1.6 2.7% Nippon Tel&Tel Cp 4.3 1.7 2.5% Asahi Group Hldgs 2.8 0.4 2.4% Orix Corp 2.9 0.5 2.4% Hitachi 3.7 1.4 2.3% Infroneer Hldgs In 2.1
Slide 13: Top 10 holdings by absolute weight
Top 10 holdings by absolute weight Schroder Japan Trust plc As at 30 September 2023 Stock Sector Issuer Portfolio weight (%) Benchmark1 weight (%) Active weight (%) Toyota Motor Corp Transportation Equipment 5.1 4.5 +0.6 Nippon Tel&Tel Cp Information & Communication 4.3 1.7 +2.6 Sumitomo Mitsui Fg B
Slide 14: Fund risk characteristics
Fund risk characteristics As at 30 September 2023 Style Research Skyline Source: Schroders SPARCS inc cash. Based on unaudited data. Figures from Style Research unless otherwise stated. Past performance is not a guide to future performance and may not be repeated. The value of investment can go down
Slide 15: Japan’s Macro Background
Schroders Japan’s Macro Background
Slide 16: Japan Macro Outlook
Japan Macro Outlook Long term positive view backed by inflation and corporate governance stories Inflation = “cost” of holding cash 1 Steady economic growth for 2023 driven by domestic demands 2 Positive cycle of mild inflation and wage growth supported by BOJ policy 3 Households: From deposits to i
Slide 17: Inflation expectation finally picking up in Japan
Inflation expectation finally picking up in Japan Both households and corporations expects prices are rising higher and longer Consumer Confidence Inflation Outlook for Enterprise Outlook for price levels (%; BOJ) (%; Tankan survey; All Enterprises) 12 5 10 8 4 6 4 3 2 2 0 2020/2 2013/9 2014/4 2014/
Slide 18: From deposits to investment amid inflationary environment
From deposits to investment amid inflationary environment New NISA: Nippon Individual Savings Account can drive individual equity investing Comparison of existing and new NISA structure Breakdown of financial assets held by households Cash & deposits Insurance & Pension Stock securities Mutual Funds
Slide 19: From cash on B/S to productivity investments
From cash on B/S to productivity investments Corporates continues to spend their idle cash to Capex including IT investments Tankan Capex Survey (All Enterprise/All Industries) 20 15 10 5 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023p -5 -10 Fixed Investment (incl. Software
Slide 20: Investment case: Inflation story
Investment case: Inflation story JPY Relative rebased to 100 Kyoritsu Maintenance: Operates dormitories for 6,500 110 6,000 students and companies. It also provides outsourcing 5,500 100 business; operates hotels under the Dormy Inn name, 5,000 4,500 90 80 as well as hot springs and resort hotels; a
Slide 21: Aggregate earnings hitting record highs
Aggregate earnings hitting record highs Earnings growth will remain solid toward 2024 TOPIX EPS 160 TOPIX 2012/12 2023/9 140 PBR 1.06x 1.21x 120 PER 21.5x 15.3x 100 ROE 4.0% 7.9% 80 Yield 2.2% 2.3% 60 40 20 0 -20 '09 23(e) 24(e) 96 19 90 91 92 93 94 95 97 98 99 00 01 02 03 04 05 06 07 08 10 11 12 13
Slide 22: Strong trend for Share Buyback
Strong trend for Share Buyback Still significant scope for higher shareholder returns Share buyback plan announcements by FY JPYtrn 9.5 9.0 FY22 8.5 FY21 8.0 7.5 FY19 7.0 6.5 6.0 FY18 5.5 FY23 5.0 4.5 FY20 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar FY14 FY15
Slide 23: Net cash companies in Japan, US, and Europe
Net cash companies in Japan, US, and Europe c.50% of Japanese companies is net cash with potential for higher shareholder returns Percentage of net cash companies (excluding financials) 60% TOPIX S&P500 STOXX600 50% 40% 30% 20% 10% 0% FY95 00 05 10 15 20 Source: Goldman Sachs, Factset, Schroders, as
Slide 24: Price to Book ratio below 1x
Price to Book ratio below 1x We expect to see more change from Small Cap space Price to Book ratio distribution - TOPIX % of companies below Price to Book below 1x by size - TOPIX 60% 200 50% of TOPIX 53% companies are P/B <1 180 50% 160 140 40% # of companies 120 100 30% 80 20% 60 40 10% 20 0 0% <0
Slide 25: Investment case: Corporate Governance story
Investment case: Corporate Governance story JPY Relative rebased to 100 Mitsui Chemical is a mid cap chemical company with 4,200 110 4,000 structurally changing their business model from 3,800 105 3,600 100 commoditised products to speciality products such as 3,400 95 3,200 healthcare, mobility, and
Slide 26: Appendix
Schroders Appendix
Slide 27: BOJ policy moved steadily ahead to normalisation
BOJ policy moved steadily ahead to normalisation Inflation likely to remain resilient and wage growth is following as BOJ expects Inflation Kazuo Ueda, BOJ governor with academic background 8.0 “The Bank of Japan judges that, 7.5 7.0 at this point in time, achieving 6.5 the price stability target of
Slide 28: Earnings prospects improving and margins seem resilient
Earnings prospects improving and margins seem resilient Overall earnings environment improving and margins backed by pricing powers Revision indices OP Margins 20% 10% 15% 9% 10% 8% 5% 7% 0% 6% 5% -5% 4% -10% 3% -15% 2% -20% 1% -25% 0% Jun 22 Jun 23 Mar 22 Sep 22 Oct 22 Dec 22 Mar 23 Sep 23 Jan 22 A
Slide 29: Reasonable valuation
Reasonable valuation Japanese stocks offer a more attractive valuation historically and relatively 12 months forward Price to Earnings Ratio TOPIX S&P 500 32 28 24 20 16 12 8 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Source: Schroders, Ministry of Finance, Bloomberg, as at
Slide 30: Japanese equity investment by foreign investors
Japanese equity investment by foreign investors Most inflows since Abenomics have flowed out, then started to pick up in 2023 TOPIX and *Aggregate net inflows in Japanese Equity Market from Foreign Investors since 2012 (TOPIX) TOPIX (LHS) Cumulative Transaction since 2012(RHS) T JPY 2,400 24 2,200 2
Slide 31: Stewardship Code
Stewardship Code Foster investors to be responsible and accountable – Stewardship responsibilities – Managing conflicts of interest Further clarity and enhancement in 1st Code 3rd Code Feb 2014 – Monitoring investee companies Mar 2020 – Consideration of ESG factors – Constructive engagement – Respon
Slide 32: Corporate Governance Code
Corporate Governance Code Revive companies’ profitability by better governance – Shareholders rights – Enhance governance structures – Cooperation with Stakeholders – Higher standard for TSE Prime market 1st Code 3rd Code Jun 2015 – Disclosure and Transparency Jun 2021 – Diversity in management posi
Slide 33: Development of Corporate Governance structure
Development of Corporate Governance structure Japanese Companies’ management system has completely changed over the decade Percentage of TSE1 companies with Percentage of TSE1 companies with majority, more than external directors & independent directors 1/3, or more than 2 external & independent dir
Slide 34: Market Dynamics in 1H 2023
Market Dynamics in 1H 2023 1H 2023 PBR (inverse) and Relative performance vs. TOPIX 20% 0 "Buffett" effect 15% Reversal (Growth style) 0.2 0.4 10% 0.6 5% 0.8 0% 1 -5% "TSE (<1.0 PBR)" 1.2 effect 1.4 -10% 1.6 -15% 1.8 Relative Performance PBR -20% 2 Source: Schroders, Bloomberg, as at 30 June 2023 33
Slide 35: Market Dynamics in 3Q 2023
Market Dynamics in 3Q 2023 3Q 2023 PBR (inverse) and Relative performance vs. TOPIX 30% 0 25% 20% Relative Performance PBR 0.5 15% 1 10% 5% 1.5 0% -5% 2 -10% -15% 2.5 Source: Schroders, Bloomberg, as at 30 September 2023 34
Slide 36: Market Dynamics – by Size and Style
Market Dynamics – by Size and Style Performance by size (Large/Small) & style (Value/Growth) 1H 2023 3Q 2023 130 113 125 111 120 109 115 107 110 105 103 105 101 100 99 95 97 95 2023/06/30 2023/07/31 2023/08/31 TOPIX TOPIX 500 Growth TOPIX TOPIX 500 Growth TOPIX 500 Value TOPIX Small Value TOPIX 500
Slide 37: Japanese Equity team
Japanese Equity team Team of Fund managers and Analysts with average Schroders’ tenure of 14 years Kazuhiro Toyoda Head of Japanese Equities Analyst Product Fund Manager Kentaro Sasaki Ayumi Kobayashi Taku Arai* Co Head of Research Deputy Head of Japanese Equities Ken Maeda Masaki Taketsume Joshua B
Slide 38: Japanese Equity team: Fund Manager profile
Japanese Equity team Fund Manager profile Masaki Taketsume, CFA Fund Manager – Lead manager for Tokyo Fund and Japan Trust plc since July 2019 – Joined Schroders in December 2007 as a sector analyst covering Technology sector and latterly assigned as Japanese equity fund manager in August 2017 – Joi
Slide 39: Idea Generation from In-House Research
Idea Generation from In-House Research Leveraging Schroders’ Global Resources Stock Selection Portfolio Construction and Risk Management Investment Insights Unit Research discussion Investment Analyst Research Stock ideas and meeting and sector views exchange of views Portfolio Trade construction ex
Slide 40: Research Evolution
Research Evolution Transition to a new approach, further leveraging our core strength Core Edges New Approach ✓ Experienced analyst team ✓ Emphasis on flexibility and agility ✓ Research coverage that emphasizes the ✓ Removing sector boundaries, expertise of analysts and focuses on small large/medium
Slide 41: Research Coverage
Research Coverage New approach to sector coverage with focus on flexibility and agility Joshua Takuya Madoka Kazuko Akira Kentaro Tatsuya Ayumi Hiromi H. Jun Kim Bennison Furutani Sato Yabutani Namegawa Sasaki Ueda Kobayashi Mori Energy ◎ 〇 Materials ◎ ◎ ◎ ◎ Automobiles / Auto Parts ◎ ◎ 〇 〇 Industri
Slide 42: Research Universe
Research Universe Narrowing down to investment ideas from broad universe All listed stocks Large cap Mid cap Small cap c.3,900 c.100 c.400 c.3,400 Liquidity – Market cap Screening – Trade volume Research Universe c.1700 stocks Research priority based – Sector view – Industry scope and value chain on
Slide 43: Fair value model
Fair value model Valuation discipline Fund managers and analysts discuss fair values and stock grading proposed by analysts EPS (FY3) Market PER Qualitative analysis Analysts’ earnings forecasts (FY3) Premium/discount Quality ranking criteria – Growth – Quality of earnings – Financial strength – Man
Slide 44: Fair value model: Qualitative evaluation
Fair value model Qualitative evaluation Scoring premium/discount from qualitative analysis Growth Quality of Earnings Balance Sheet Management Shareholders Value • 3-year-profit-growth • Accuracy of earnings • Balance Sheet • Environment & Social • Transparency & after FY3 expectation and volatility
Slide 45: SustainEx and CONTEXT: Two proprietary tools
SustainEx and CONTEXT: Two proprietary tools Take the debate about sustainability away from anecdotes and towards specifics SustainEx CONTEXT Activities Analysts Behaviours Measuring what companies do and how they do it (based on academic research) (based on proprietary research) Scores need linking
Slide 46: ESG approach in Japan
ESG approach in Japan ESG integration and Stewardship activities Fundamental research and Portfolio construction: ESG Integration Quality assessment in Fair Value model Examine all agendas and vote actively Proxy voting Disclose voting records in details Create Focus list and conduct engagement meet
Slide 47: Schroders ESG credentials
21+ 50+ 300+ years Fully ESG With Across 2,100+ 58 years Dedicated ESG Combined investment Integrated Engagements Countries ESG integration experience in 2021 specialists globally Across our managed assets 10 13,000+ A+ 1st UN Net Zero Proprietary investment Companies covered by our tools and framew
Slide 48: ESG integration
ESG integration Embedded in our culture and investment process Thematic research Communication – Examines key sustainability trends and challenges current thinking – ESG specialists sit amongst investment teams to facilitate – Focused on investment impacts regular dialogue – Research and engagements
Slide 49: CONTEXT: Measuring relative strength of stakeholder relationships
CONTEXT: Measuring relative strength of stakeholder relationships Provides a framework for scoring companies relative to sector peers Themes 735 global ESG trends for 47 sub-sectors CONTEXT Analyst scores vs peers Metrics ~260 data points from ~80 sources Companies 13,000+ companies covered Engageme
Slide 50: SustainEx
SustainEx Translating social impacts into financial costs A proprietary tool built on… We mapped a wide range of Over 1,000 academic and possible impacts industry studies of social impacts and externalities Companies generate impacts on society (positive and negative) Regulation is increasingly maki
Slide 51: Sustainability metrics overview
NOT FOR ONWARD DISTRIBUTION Sustainability metrics overview Schroder Japan Trust PLC (IT) as at 31 August 2023 Overall impact Asset Asset classclass impact breakdown breakdown Corporate carbon footprint Portfolio holdings breakdown: Overall Impact Impact on People Portfolio Impact on Planet Benchmar
Slide 52: SustainEx score summary
. SustainEx score summary Schroder Japan Trust PLC (IT) as at 31 August 2023 Overall impact Impact on People Impact on Planet Portfolio Benchmark Portfolio Benchmark Portfolio Benchmark -$1.1 -$2.8 +$0.7 -$1.0 -$1.8 -$1.8 /$100 sales /$100 sales /$100 sales /$100 sales /$100 sales /$100 sales Fair P
Slide 53: Corporate Climate metrics
Portfolio Corporate Climate metrics Benchmark Schroder Japan Trust PLC (IT) as at 31 August 2023 Total carbon emissions Carbon footprint Weighted average carbon intensity Carbon Value at Risk (VaR) Metric tonnes of CO2e Tonnes of CO2e per $m invested Tonnes of CO2e per $m revenue % earnings at risk
Slide 54: Corporate sustainability performance measures
Corporate sustainability performance measures Schroder Japan Trust PLC (IT) as at 31 August 2023 Metric Principal Adverse Impact Unit Portfolio Coverage Benchmark Coverage Share of investments in companies that have been involved in UNGC and OECD principal violators violations of UNGC and OECD princ
Slide 55: Third party portfolio metrics
Third party portfolio metrics Schroder Japan Trust PLC (IT) as at 31 August 2023 Controversy metrics Morningstar ESG rating MSCI ESG Rating Title Portfolio Benchmark Sustainalytics % of AUM with High or 17.8% 16.6% MSCI Portfolio ESG Severe ESG risk Quality Score MSCI measure of UN Global 0% 0.2% 26
Slide 56: Sustainability disclaimers
Sustainability disclaimers Schroder Japan Trust PLC (IT) Overall Impact MSCI ESG Research rating: Produced by MSCI ESG Research as of the “reporting date”. MSCI ESG Research LLC’s (“MSCI ESG”) portfolio Metrics and Ratings (the “Information”) provide environmental, social and governance data with re
Slide 57: Sustainability definitions
Sustainability definitions Schroder Japan Trust PLC (IT) Corporate SustainEx™ Impact metrics: Corporate SustainEx™ Impact metrics (continued): Alcohol: Societal cost of alcohol consumption (assigned to alcohol producers). Innovation: Societal benefits arising from the investment in R&D. Assigned bas
Slide 58: Sustainability definitions and disclaimers
Sustainability definitions and disclaimers Schroder Japan Trust PLC (IT) Corporate carbon metrics Total carbon emissions: The absolute greenhouse gas emissions associated with a portfolio, expressed in tonsCO2e. Methodology is aligned to “total carbon emissions” as defined by TCFD and The EU’s Susta
Slide 59: Important information
Important information Marketing material Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Exchange rate changes may cause the value
Slide 60: Contact
Contact Schroder Investment Management Limited, 1 London Wall Place, London, EC2Y 5AU. schroders.com
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