Forget Silicon Valley, now Japan’s the land of the rising tech

Investing in companies that are part of the new digitalised world has proved a sound strategy for many investors in recent years – as well as in the past few months as the world has gone into lockdown and is only now slowly emerging from its mothballing. 

Look at the US stock market and it is the technology giants that continue to drive it forward – the likes of Apple, Alphabet (owner of Google), Amazon, Facebook and Microsoft. It is difficult to see how their dominance of both the stock market and world economy is going to recede, though for sure there will be hiccups along the way. 

Yet the digital story is not exclusively an American one. Companies across the world are emerging that make possible the new digitalised age we all live in – where payments are made by phone rather than in cash, shopping is done online rather than on the high street, and where an array of services (everything from medical advice to buying a home) embraces new technology. 

Traditional: Experts say there is big money to be made in Japanese firms that embrace the digital age, given 80 per cent of payments are still made in cash

One stock market where a raft of technology-focused companies is beginning to emerge – and excite some of the UK’s investment houses – is Japan. According to experts, Japanese technology companies provide UK investors with the opportunity to make solid returns over the next five to ten years because Japan is way behind the US in digitalising its economy. 

So innovative businesses, developing industry-leading technologies, could grow rapidly as the economy modernises. 

Nicholas Weindling manages the £1billion investment trust JPMorgan Japanese from offices in Tokyo. His investment record is exemplary, delivering returns for shareholders of just under 100 per cent over the past five years. 

However, his fund and record have not registered on the radar of most UK investors. He believes this is because Japan is seen from the outside as a country with an ageing and shrinking population – and where economic growth is being held back by a culture of thrift rather than spending. 

It is therefore not considered a ‘sexy’ investment, when in fact some companies that make up parts of the stock market are appealing. 

‘If you look at Japan’s stock market, it is dominated by banks, car makers and office equipment manufacturers: the likes of Canon, Sony and Panasonic,’ says Weindling. 

‘They are all operating in what I consider to be old-style industries. But as an investor, that is not where you are going to make your money. The key is to find the next generation of company ideas – and that usually means concentrating on companies with a digital bent.’ 

Among JPMorgan Japanese’s 60 holdings is the electronic payments company GMO Payment Gateway. 

‘Its growth runway is long,’ says Weindling. ‘It’s at the equivalent of metre ten in a hundred-metre race, which means the opportunity for investors to make money as the business grows is huge. 

‘Eighty per cent of payments in Japan are still made in cash.’ 

Other key stakes are in robotics specialist Keyence and Base, Japan’s answer to the music streaming company Spotify. 

‘Japan leads the world in robotics,’ says Weindling. ‘Automation of production is a theme that is not going to go away. As for Base, subscription numbers have soared during the coronavirus pandemic.’ Weindling’s view is not an isolated one. It is shared by Praveen Kumar, manager of investment trust Baillie Gifford Shin Nippon, which invests in smaller Japanese firms. 

‘There are more than 4,000 stock market listed companies in Japan,’ he says. ‘There’s lots of rubbish out there, but there is also a number of fast-growing disruptive businesses that are exciting from an investment point of view – but overlooked by overseas investors. 

‘They’re the growth companies I’m interested in.’ 

The trust’s biggest stake is in legal information website Bengo4. com. Other top ten holdings include GMO Payment Gateway and Monotaro, an online retailer of factory clothes and industrial products. The trust has no holdings in oil and gas companies, banks or insurers. 

‘There is underlying change going on in Japan,’ says Kumar. ‘This is providing investment growth opportunities as young, dynamic companies emerge to take advantage of the situation.’ 

Investment advisers are also keen on Japan as a stock market to make money from. Teodor Dilov is a fund analyst at the wealth manager Interactive Investor. He says that the Japanese stock market is in better shape than it has been for a long time – buoyed by a stronger economy (not affected as badly as others by the coronavirus pandemic) and reforms spearheaded by prime minister Shinzo Abe to make companies more shareholder-friendly. 

These include better corporate governance and a greater emphasis on dividend payouts. But, like Weindling and Kumar, Dilov is most excited by the Japanese digitalisation theme. =

He says: ‘Japan has quickly become a market that investors cannot afford to ignore because of the advent of companies that are well positioned to profit from the digitalisation of Japanese society. 

‘Large parts of Japan’s society are behind the digital curve compared with the rest of the developed world. That means exciting growth opportunities for Japanese companies involved in digital transformation.’ 

One other attraction of investing in Japan is that many of the smaller listed companies – including many digitally focused companies – are woefully under-researched. This provides smart fund managers, such as Weindling and Kumar, with the chance to unearth investment gems early – and before others. It explains why Weindling is based in Tokyo with the rest of JP Morgan’s Japanese investment team. 

Brian Dennehy is managing director of investment research firm FundExpert. He has long recommended Japanese smaller company funds to clients and says the investment case remains robust. 

‘Smaller firms in Japan represent good value and are under-researched,’ he says. ‘Three-quarters of the 1,900 listed smaller firms in Japan are either covered by just one investment analyst or none at all. By comparison, 70 per cent of US smaller companies are tracked by at least three analysts. For an active Japanese fund manager prepared to do some digging, investment opportunities abound.’ 

Dennehy believes that as Abe pushes through more economic and corporate reforms, the case for investing in Japan will become stronger. He also likes the fact that Japan is ‘politically stable with great social cohesion’, asking: ‘Is that unique in today’s world?’  

Which investment trust is the best way in?

Both investment trusts JPMorgan Japanese and Baillie Gifford Shin Nippon are seen by investment experts as good ways into the Japanese stock market. 

David Coombs is head of multiasset investments at asset manager Rathbones. He uses JPMorgan Japanese to get exposure to the Japanese stock market for the various multi-asset portfolios he runs on behalf of investors. 

‘Japan is a stock market where good active fund managers can thrive,’ he says. ‘JPMorgan’s Nicholas Weindling concentrates on identifying out and out growth companies and it’s a strategy that has proved increasingly successful.’

Interactive Investor’s Teodor Dilov is a fan of Baillie Gifford Shin Nippon, describing it as ‘adventurous’. He adds: ‘The manager focuses on a concentrated number of exciting, emerging and disruptive growth companies – typically run by young, dynamic entrepreneurs.’ 

Baillie Gifford’s expertise in Japan is reflected by the fact that a number of its other Japanese funds are liked by experts. They include Japanese Smaller Companies – run by the same manager (Praveen Kumar) that oversees Shin Nippon – and Japanese, which has a focus on companies that are global leaders (the likes of games company Nintendo). Other recommendations include Lindsell Train Japanese and AXA Framlington Japan. 

Japan is also an option for income seekers, although dividend yields are low at around 2.5 per cent. But coronavirus has not been as disruptive from a business point of view as elsewhere in the world – and Japanese companies are notorious hoarders of cash, which means they have the ammunition to pay dividends if they want to. Preferred funds include Jupiter Japan Income and Morant Wright Nippon Yield, with respective dividend yields of 2.3 per cent and 2.8 per cent. 

Anyone looking to buy a Japanese investment fund should ensure it fits into a well-diversified portfolio. It should also be viewed as a long-term investment only. 

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MIDAS SHARE TIPS UPDATE: Dividends at Robinson

MIDAS SHARE TIPS UPDATE: Dividends? They’re part of the package at Robinson

Dividends are a scarce commodity these days. Some companies are cancelling them out of necessity. Others, such as Driver, are cancelling them out of caution. 

Robinson Packaging, based in Chesterfield, Derbyshire, has taken a different tack. Back in March, chairman Alan Raleigh decided against paying shareholders a final dividend, citing too much uncertainty about the future. 

On June 30, however, the group said things were not looking so bad after all, so 3.5p would be paid to shareholders, as a first interim dividend for 2020. 

Boxing clever: Dividends are a scarce commodity these days but Robinson Packaging has taken a different tack

Robinson makes plastic packaging for food, personal care and household goods, from soup cartons to spice jars, and from detergent bottles to hand sanitisers. As consumers have eaten more at home, spent more on cleaning products and washed their hands often, Robinson has benefited. 

Deft planning meant the group kept its manufacturing plants up and running throughout the lockdown, first-half sales rose 5 per cent and profit margins improved. The firm also paid down debt, even as it continued to invest in new facilities to accelerate growth. 

Midas recommended Robinson online in 2013, when the shares were £1.30. The stock later surged to more than £2.40, but it has drifted lower in recent years. A key customer moved production to Mexico, there were issues on the board and a there was a big backlash against plastic. Now prospects are looking up. Robinson beat expectations in 2019, as sales rose 7 per cent to £35million and pre-tax profits more than doubled to £1.5million. 

Brokers at FinnCap expect that profits will be at least maintained this year. They also forecast dividends of 5.5p, on top of the 3.5p declared last month. 

The board has been beefed up, too. Raleigh was appointed in 2018 and duly brought in a new chief executive, Helene Roberts, last year. She has spent her career in the packaging industry, including 14 years at Marks & Spencer. Highly experienced in the field, she is also a keen advocate of sustainable packaging. 

Robinson was already at the forefront of product innovation, designing goods that are functional, light and made with recycled plastics wherever possible. That focus will intensify with Roberts on board. 

Clever products have helped Robinson win new customers in recent times and more business gains are likely to follow. The pandemic is also encouraging big firms such as Unilever, Kraft and Nestlé to consider using more local suppliers, such as Robinson. 

The group’s record on dividends is noteworthy, too. Even when profits came under pressure, dividends were maintained, supported by a strong balance sheet and a desire to offer shareholders decent income. 

This approach reflects Robinson’s family heritage. The business can trace its origins back nearly 200 years to when it was making willow boxes for ointments. Several members of the clan remain on the shareholder register, and finance director Guy Robinson is a descendant of the founders.

Midas verdict: Robinson shares have see-sawed over the past seven years, but steady dividends have provided some consolation. Now, it seems that the company has a new spring in its step. The group is determined to take turnover to £50million over the coming years, increase profits and enhance its reputation as a sustainable packaging specialist. At £1.09, the stock should rise – and the 5 per cent yield is a further attraction. 

Traded on: AIM Ticker: RBN Contact: robinsonpackaging.com or 01246 389280 

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Rollercoaster ride for shareholders in BMO Global

Rollercoaster ride this year for shareholders in BMO Global Smaller Companies – a small firms trust with BIG income record

It has been a rollercoaster ride this year for shareholders in investment trust BMO Global Smaller Companies. Over the past six months, the shares have fallen by more than 20 per cent, but they have bounced back sharply in the past 12 weeks by nearly 9 per cent. 

Investment manager Peter Ewins, currently running the £810million fund from his attic at home in Tunbridge Wells, Kent, says the past four months have been a ‘difficult and challenging times’ for investors. 

Furthermore, although he likes to be optimistic as a fund manager, he accepts that the future remains fraught with investment danger. ‘We’ve got a serious recession ahead,’ he says, ‘and as a result we need to be cautious in the near term. The glimmer of hope on the horizon is that smaller companies tend to do well when economies come out of recession.’ 

The trust is in defensive mode. It has a diversified portfolio of more than 180 holdings spread across the globe, but with an emphasis on North American and UK smaller companies. By way of comparison, the £1.8billion Smithson – a rival global smaller companies fund run by Fundsmith – has only 31 holdings. 

BMO Global also prefers to access smaller companies in the Far East or listed on emerging markets via investment funds managed by rival asset managers – funds that in turn have diverse smaller company portfolios. Indeed, the trust’s five biggest stakes are all in funds, run by Aberdeen Standard, Eastspring (part of Prudential), Pinebridge, First State Investments and Utilico. 

The final damage-limitation tools stem from the trust’s decision in March – ahead of the coronavirus pandemic – to get rid of all its borrowings, thereby limiting exposure to falling markets – and Ewins’ thorough lockdown review of the trust’s holdings to see if any of the companies ‘were financially compromised’. 

The result of this portfolio review has been the disposal of a number of holdings, including companies operating in the energy sector and vulnerable to a sliding oil price – the likes of US- listed Core Laboratories and Norwegian-based TGS Nopec. It has also prompted the building of stakes in a number of defensive stocks, and companies whose share price had fallen sharply – therefore providing Ewins with a ‘valuation opportunity’. 

Among the ‘defensive’ purchases are shares in US company Nomad Food, owner of classic brands such as Findus, Birds Eye and Aunt Bessie’s. ‘Lockdown has resulted in more people eating frozen food,’ says Ewins. Other new holdings include Stock Spirits, a UK-listed drinks business operating in Poland and HelloFresh – a provider of meal kits to cook at home. 

Although the trust’s overall long-term performance record is bettered by rival trusts such as Edinburgh Worldwide (managed by Baillie Gifford) and Herald, it has a record of delivering a steady increase in dividend income. 

It has pushed up its dividends every year for the past 50 and with the equivalent of more than a year’s income in reserve, it is well placed to continue growing it. But the income is modest, equivalent to just 1.5 per cent a year. 

Fund Calibre – a scrutineer of investment funds – includes BMO Global in its list of ‘elite’ global equity funds.

It says the trust ‘could be an excellent option for investors seeking exposure to smaller companies who are aware of the additional risks in this part of the market’. 

PUNT OF THE WEEK: Tin miner Afritin

PUNT OF THE WEEK: Tin miner Afritin is tipped to benefit from the electric vehicle and renewables revolution

WHAT IS IT? 

A tin miner with a working mine in Namibia, which it is developing further, and a project in South Africa. Listed on AIM, it was spun out of vanadium producer Bushveld Minerals in 2017.

WHAT’S THE LATEST?

Operations at its flagship Uis mine in Namibia restarted in mid-June after being halted because of coronavirus.

WHO BACKS IT?

Build UK boss Brendan Kerr is a shareholder, while Bushveld still owns almost 8 per cent.

WHY SHOULD YOU INVEST?

John Meyer, head of research at SP Angel, said tin is tipped as one of the metals set to benefit from the electric vehicle and renewables revolution.

And, he added, it is helped by its main project being based in Namibia, which is ‘seen as a stable, mining-friendly country with good infrastructure’.

AND WHY YOU SHOULDN’T?

However, Meyer said: ‘The small tin market can be upset by new entrants such as Myanmar which produces tin concentrates from alluvial projects.’

Tin deposits are also relatively small when compared with copper and most other metals.

Boohoo still ‘king of AIM’ after rollercoaster week

SMALL CAP MOVERS: Boohoo still ‘king of AIM’ after rollercoaster week; Sosandar sees revenues soaring during lockdown

Boohoo held onto ‘king of AIM’ crown after a rollercoaster week.

Shares in the fast-fashion retailer have recuperated a little after a three-day descent that wiped off over 40 per cent of their value.

The stock is now 21 per cent lower than a week ago at 308p, making the clothier worth £3.8billion, meaning it is still the most valuable business on AIM.

The online giant came under fire following weekend allegations of modern slavery practices at one of its suppliers’ in Leicester.

But the owner of Nasty Gal and Pretty Little Thing received support in the City after agencies such as the Gangmasters and Labour Abuse Authority said there was no evidence of wrongdoing at the East Midlands factories.

Boohoo’s shares have recuperated a little after a three-day descent that wiped off over 40 per rcent of their value. Despite this, it is still the most valuable business on AIM

‘Buyers started to return after the precipitous falls of earlier this week, with some saying that the declines have been too severe when set against the underlying long-term fundamentals,’ said Michael Hewson, analyst at CMC Markets.

Fellow online-only retailer Sosandar had a better week, adding 19 per cent to 12p after slashing quarterly losses by 70 per cent thanks to more frugal marketing spend during the crisis.

But the clothier is planning to gradually restart customer acquisition, especially after revenues in the quarter to June were driven 54 per cent higher by demand for ‘lockdown products’ such as loungewear and casual summer dresses.

Looking at the wider market, the AIM All-Share index dipped 1 per cent to 885 following the boohoo slump, still outperforming the FTSE 100 which was down 2 per cent to 6,070.

SkinBioTherapeutics has been defying all trends, rocketing 222 per cent to 17p since March 19 as investors see the promise in studying the skin microbiome while most focus on the gut’s.

This week its partner Winclove came up with a food supplement for psoriasis eight months ahead of schedule, so there may be a finalised product on the shelves by next summer.

Eurasia Mining returned on AIM with great fanfare, soaring 109 per cent to 15p, after signing an engagement letter with Chinese group CITIC Merchant to explore strategic options for its mining assets.

Meanwhile, artificial intelligence specialist Maestrano doubled to 7p thanks to a deal with mapping giant Esri to work for ARTC, a government organisation that manages most of Australia’s interstate railway network.

Elsewhere, spirits retailer Distil was up a bubbly 26% to 1p after estimating revenue for the six months to September will soar 75-85 per cent on last year, as homemade cocktails are on the menu during lockdown.

Escape Hunt rose 12 per cent to 7p after announcing its escape rooms in England will reopen on Saturday, while it welcomed the Treasury’s reduction of VAT to 5 per cent from 20 per cent in the hospitality and leisure sectors.

Sticking with entertainment, virtual reality firm MelodyVR added 10 per cent to 4p on the back of an exclusive partnership with Live Nation UK to organise a series of new live concerts. Fans will have the choice of watching performances set in London’s O2 Academy Brixton from multiple points, including on stage with the artists themselves.

Among the fallers, marketing services provider Altitude slumped 34 per cent to 19p after admitting cashflow in the quarter to September will be hit by lower revenues as a result of the pandemic.

e-Therapeutics dropped 30 per cent to 12p after raising £12.4million by placing shares at a 30% discount to expand its drug discovery platform and asset pipeline.

Likewise, waste-to-energy firm EQTEC fell 28 per cent to 0.4p after raising £10million through an oversubscribed placing at a 33.8 per cent discount to boost its current projects.

Interestingly, finnCap boasted its strongest ever first quarter with revenues jumping 50 per cent thanks to a flurry of fundraisings during the crisis.

Finally, refinancing worries dragged Oracle Power down 16 per cent to 0.7p after the Pakistan-focused coal developer brought in £1.5million of new capital and put in place a further £45million financing facility with Riverfort Global Capital.