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Zennor Asset Management
Zennor Asset Management has launched the LF Zennor Japan Equity Income Fund to capitalise on a growing opportunity for income investors, driven by the governance revolution that is reinvigorating corporate Japan.

The new fund will be managed by Japan fund managers James Salter and David Mitchinson. The duo will aim to deliver a growing level of income, whilst preserving and growing capital by investing in overlooked, under achieving and mispriced companies, where there is a clear catalyst for change, the firm said in a statement.

James Salter, Zennor founder and CIO, said: "This is a story unique to Japan. Companies are under increasing pressure to reshape and shrink their balance sheets, which are in many cases in rude health.” 

“This is providing a very powerful tailwind for dividends and share buybacks – and is likely to have a positive impact on share prices too. We have earmarked many companies under the radar of mainstream global funds, where we expect the growth in dividends over the next three to five years to be much higher than the growth in earnings," he continued.

The launch of the UK-domiciled OEIC comes with the ongoing corporate change in Japan following moves this year by the Tokyo Stock Exchange to encourage listed companies to improve their disclosure, reporting and governance structure, the firm said. Additionally, they have asked companies to disclose their cost of capital and introduced new rules after demanding concrete action from companies that persistently trade below book value. 

To improve their returns, many companies need to stop their balance sheets from growing and shrink their asset bases, the firm added. Zennor believes this action will include increasing dividend pay-outs, embarking on share buybacks, or investing to expand operations.

Unlike their Western counterparts, many of Japan's companies are awash with cash and able to increase dividends meaningfully, the firm continued. More than half of Japanese companies listed on the Topix have net cash on their balance sheets compared with around 20 per cent of companies on the S&P 500 and the FTSE All-Share. They also have lots of historic investment securities and unrealised gains on land, which has in many cases been on the balance sheets for more than a century, the firm said.

Japanese investment house SuMi Trust, which also expects the Japanese stock market to stay robust in 2023, is positive about the outlook for the Japanese economy. See here.

David Mitchinson, Zennor co-founder and fund manager, said: "The perception that nothing ever changes in Japan is no longer true. We have managed money in Japan since the 1990s and are finally witnessing meaningful long-term change. As companies reshape their capital structures to an appropriate level, there is a compelling opportunity for investors, particularly income-seeking ones, to benefit from that change.”

In establishing the LF Zennor Japan Equity Income Fund, Zennor has partnered with independent distributor Spring Capital Partners to bring the fund to the attention of fund buyers and asset allocators, and Link Fund Solutions to oversee the fund's administration.

Established in 2020, Zennor is a boutique investment manager, focused on delivering consistent positive long-term returns by investing in Japanese equities. The Zennor Japan Fund, a Luxembourg SICAV, was launched in February 2021. See other articles focused on Japan here.