Nippon Active Value Fund Trails Japan Rally Despite Rising NAV

Nippon Active Value Fund (LON: NAVF), a UK-listed trust that invests in undervalued Japanese small and mid-cap companies using an activist engagement strategy, reported half-year results earlier today showing net asset value per share up to 230.0p at the end of June, from 223.7p at the end of December, with net assets rising to £451.6m. The share price discount to that net asset value narrowed sharply to 3.9%, from 7.5%.

Despite that progress, NAVF’s net asset value total return was 5.2% over the six months, and its share price total return 9.4%, both far behind the MSCI Japan Small Cap Index’s 17.7% and the TOPIX index’s 14.1% over the same period. NAVF shares traded at 224.02p in early trade today, up 0.91% from yesterday’s close of 222p, within a 52-week range of 190.12p to 245.98p.

Rising Sun Management, NAVF’s Investment Adviser, said the gap reflects a narrow rally concentrated in artificial intelligence and semiconductor stocks that its value-focused, activist strategy is not built to capture.

Paul ffolkes Davis, Rising Sun Management stated: “This is the first time since NAVF’s inception that we have seen such underperformance compared to the Japanese stock indices; however, we are not generally involved in tech and AI stocks as it is not often compatible with NAVF’s strategy and is therefore really not where we play, or, indeed, should play.”

The engagement strategy continued to produce outcomes in the period. Former holding Hogy Medical was delisted after a Carlyle-led take-private bid, while NAVF exited most of its Fuji Media Holdings stake in February for a stated 150% profit through a buyback, before rebuilding a position in June. Boards at Bunka Shutter and ASKA Pharmaceutical Holdings adopted takeover defences that Rising Sun criticised as against shareholder interests, underlining growing pushback from Japanese companies against activist investors.