Fidelity Japanese Values delivered positive outperformance

Fidelity Japanese Values delivered positive outperformance in its annual results for the year ended 31 December 2017, resulting in a NAV total return of +34.1%. The Russell Nomura Mid/Small Cap Index gained 17.5% in sterling terms over the same time period. The share price rose by 49.3% and as a result the discount  to NAV narrowed to 7.7% from 17.1% a year ago.

Benchmark change

The Board is proposing to amend the company’s objective and investment policy to better reflect the Portfolio Manager’s investment approach to include a greater weighting to micro, small and large cap stocks. The manager is a smaller companies specialist. The board believe that changing the objective to reflect a greater weighting to micro, small and large cap stocks would be a fairer reflection of the approach the manager sees as working best in the future and greatly increase the investable universe.

The proposed changes to the objective and investment policy are set out in more detail in the Circular to shareholders dated 10 April 2018. A resolution to amend the investment policy will be proposed at the AGM on 22 May 2018, as set out in the circular

This is a summary of the change:

The proposed investment policy is set out in full in Part II A of the Circular dated 10 April 2018.  In light of recent regulatory developments and a drive for greater transparency and clarity in respect of financial products, the key aspects of the proposed investment policy can be summarised as follows:

The Investment Manager will typically focus on those companies primarily listed on Japanese stock exchanges whose growth prospects are not fully recognised by the market (“growth at a reasonable price”). The Investment Manager is not restricted in terms of size or industry of the underlying entities in which it invests. The Company may also hold cash or invest in cash equivalents including money market instruments, and is able to use derivatives for efficient portfolio management, gearing and investment purposes. The Investment Manager must work within the guidelines set out in the investment policy.

Name Change

Because the manager’s style is less about value and more about picking growth stocks at a reasonable price and as the objective is changing, the board believes that the company’s name should be changed to Fidelity Japan Trust PLC. it will keep its existing ticker (FJV), SEDOL and ISIN.

Change of Reference Index

The reference benchmark will change from the Russell Nomura Mid/Small Cap Index to the TOPIX Index (Tokyo Stock Exchange TOPIX Total Return Index) (with effect from 22 May 2018).

Change of Peer Group

In light of the proposed change of objective and investment policy the board has determined that with effect from 22 May 2018, the company will move from the AIC Japan Smaller Companies peer group to the AIC Japan peer group.

Management Fees

Following Fidelity’s announcement in October last year to offer its clients a variable management fee, the board has negotiated a new fee agreement with the Manager. The new agreement reduces the headline management fee from 0.85% of gross assets to 0.70% of net assets per annum with a +/- 0.20% variation based on performance relative to the reference Index. The change from using gross to net assets will lead to a significant reduction in the base fee taking into account the current level of gearing. The maximum fee that the company will pay will be 0.90% of net assets, but if the company underperforms against the reference index, the overall fee could fall as low as 0.50% of net assets. This will be effective from 1 July 2018.

FSV : Fidelity Japanese Values delivered positive outperformance

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