How this investment trust took advantage of rising market

2025 marked a strong year for JPMorgan Japanese Ord (LSE:JFJ) in performance terms with the trust posting a net asset value (NAV) return of 25% and share price return of 24.9%. Both are materially ahead of its TOPIX benchmark return of 16.9%. Its financial year ran to 30 September 2025.

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Returns were muted in the first half of the year but gained momentum in the second half, driving the overall return. The wider Japanese market benefited from a host of supportive macro factors, including yen weakness, improving corporate governance and renewed domestic investor interest. The trust was able to add further value through disciplined active management.

Performance was driven primarily by successful stock selection across a range of sectors, with strength in companies benefiting from structural reform, rising capital efficiency and improving shareholder returns. The use of gearing also contributed positively in a rising market environment, amplifying gains where conviction was high.

Top contributors were concentrated in industrials and financials, led by IHI and Mitsui E&S, where restructuring and a sharper focus on high-quality core businesses drove strong returns, alongside financials exposure through Rakuten Bank, which benefited from robust earnings and customer growth.

Detractors were primarily within technology and financial infrastructure, notably Keyence and Tokyo Electron in technology, and Japan Exchange in financial services, reflecting share price weakness despite mixed underlying fundamentals, with the position in Tokyo Electron exited during the period.

Looking beyond the most recent year, the company’s average annualised NAV total return over three years was 18.8%, compared to the benchmark’s 13.9%. Performance still lags the benchmark over five years, due mainly to the sensitivity of portfolio holdings to global increases in interest rates during 2021 and 2022.

The numbers in detail (for financial year to 30 September 2025)

NAV (Net Asset Value) Return: +25%
Share Price Return: +24.9%
Benchmark Return (TOPIX): +16.9%
Dividend: 8.70p (previous year 6.75p)
Premium/Discount: -10.5% (vs 10.2%)
Gearing: 13.5% (vs 10.5% previous year)

Outlook: manager Nicholas Weindling and team remain focused on identifying companies positioned to benefit from Japan’s ongoing structural transformation, with particular emphasis on improving corporate governance, balance-sheet efficiency and sustainable earnings growth. The trust is positioned towards businesses demonstrating clear management alignment with shareholders, robust cash generation and the ability to compound returns over the medium to long term.

While the manager remains mindful of near-term risks, including global economic uncertainty and geopolitical developments, the overall outlook is cautiously optimistic. Valuations in parts of the Japanese market remain attractive relative to other developed markets, and continued progress on capital discipline and shareholder returns provides a supportive backdrop.

Gearing is expected to be used selectively, reflecting conviction in stock selection rather than a directional market view. Overall, the trust is positioned to capture long-term opportunities while retaining the flexibility to navigate periods of market volatility.

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Portfolio: the trust’s sector positioning remains broadly consistent with recent years. Core exposures continue to be driven by bottom-up conviction in companies with strong balance sheets, sustainable competitive advantages and clear catalysts for value creation. As a result, sector weights may differ from the benchmark but are an outcome of individual company opportunities rather than a deliberate macro stance.

That said, the portfolio continues to evolve as new opportunities emerge in the Japanese market. Portfolio activity over the year was characterised by selective additions to industrials, financials and consumer-focused sectors, alongside exits from more cyclical areas of technology and manufacturing.

New positions included IHI, NEC and Mitsui E&S (industrials); Mitsubishi UFJ Financial Group Inc ADR (NYSE:MUFG) and SBI Holdings (financials); Ryohin Keikaku (consumer discretionary); Taisei and Modec (industrials and energy-related services), while the trust also added to its holding in Sony Group Corp ADR (NYSE:SONY) within consumer electronics and entertainment.

Sales and reductions were concentrated in technology and cyclical industrials, with positions exited in Tokyo Electron, Shin-Etsu Chemical, Murata and Denso, reflecting concerns over competition and end-market weakness. Profits were also taken in industrial conglomerate Hitachi following a strong period of performance.

Discount: over the year, there was some variability in the discount which was -10.5% as of 30 September 2025. Periods of market volatility led to some short-term widening, but this was addressed through active discount management. At the time of the writing, the discount has narrowed to -7.5%.

Dividend: for the year, the trust has declared a final dividend of 8.70p per share, representing a meaningful increase on the prior year (6.75p) and reflecting the strength of portfolio income generation. Importantly, the dividend remains well supported by revenue earnings and the trust’s healthy revenue reserves.

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JFJ, which appears on interactive investor’s Super 60 list of investment ideas, delivered for investors over this financial year with performance clearly ahead of both its benchmark and the wider Japanese equity market.

This is impressive given Japanese value stocks which benefited from a weaker yen dominated indices and that JFJ is focused on quality and growth stocks. This outperformance was driven by effective stock selection, selective use of gearing and a consistent focus on companies benefiting from structural reform and improving corporate behaviour.

Importantly, this is not an isolated outcome. The trust’s longer-term returns continue to demonstrate the robustness of the investment approach across different market environments, reinforcing confidence in the trust’s ability to deliver for shareholders. Over 10 years, the annualised NAV total return is 11.4%, ahead of the benchmark’s 9.5%, demonstrating the manager’s ability to navigate different market cycles.

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Looking ahead, the outlook remains constructive. The portfolio manager’s focus on balance-sheet strength, capital efficiency and shareholder alignment leaves the trust well positioned to benefit from ongoing reform in Japan.

While discount levels will inevitably fluctuate with market sentiment, management remains committed to disciplined discount control in the interests of shareholders. Meanwhile, the dividend increased to 8.70p per share, underlining improved income generation and supported by healthy revenue reserves, providing both sustainability and resilience.

Two strategic developments over the year further strengthen the trust’s proposition. The appointment of a new co-manager, Xuming Tao, adds further resource to the investment team. In addition, the merger with the JPMorgan Small Cap Growth & Income Trust broadens the opportunity set, improves liquidity, while further strengthening market presence.