Many investors newly allocating to Japanese equities tend to start with an index ETF or household-name large-cap stocks. Such stocks do indeed trade at a discount to what investors may be used to seeing in the US, but trade at massive premia to small-cap Japan.
Senjin Capital sources its investment opportunities from within this low-priced universe of smaller companies, but we seek out the very cheapest companies in this space, with large holdings of excess assets, and reasonably profitable and stable businesses:
With the valuation of our median shortlisted company supported by an average 77% of market cap being comprised of cash, real estate, and investment securities, we do not need to catalyse major operational restructuring in order to realise positive outcomes.
Would we like to see significant improvement in our investee companies’ operations? Of course. But it is not a necessary condition for us to achieve our targeted returns. Simple improvements in capital allocation, such as sizeable dividend increases, can result in significant stock-price appreciation.
