AVI Japan Opportunity Trust’s (AJOT) positive performance continued in 2025. This was a transformative year which saw the fund merge with Fidelity Japan Trust in Q4.
‘AJOT’ delivered a strong net asset value (NAV) return of 22.8% in Japanese Yen last year, and a third consecutive year of double-digit sterling-based returns.
While the 14.7% sterling return proved robust, it did lag the 19.8% sterling return from the MSCI Japan Small Cap Index as performance weakened in the second half. The benchmark was propped up by the performance of larger names that don’t fall within AJOT’s investment universe.
AJOT’s share price total return was 15.3% as the discount to NAV on the trust narrowed from 2.1% to 1.6%.
The £350 million cap trust aims to capitalise on Japan’s increased focus on corporate governance, balance sheet efficiency and shareholder returns. AJOT invests in undervalued, cash-rich companies and uses constructive engagement to unlock value.
Tale of two halves
Manager Joe Bauernfreund said 2025 was a ‘tale of two halves’. After a strong start, performance weakened in the second half which resulted in underperformance for the year. The latter half proved quieter in terms of engagement results and witnessed an increasingly volatile macro backdrop in Japan.
Top stock contributors included Kurabo Industries, TSI Holdings and Tecnos Japan.
TSI Holdings sold real estate assets equivalent to 30% of its market cap. This was followed by a 15.3% buyback into which AJOT sold its entire holding. The disposal neatly closed the position after three years for a 92% return on investment.
Conglomerate Kurabo announced the restructuring of its unprofitable textile business. And Tecnos Japan received a tender offer at a 39% premium to the undisturbed share price.
Bigger and better
The combination with Fidelity Japan Trust created a larger, more liquid trust which should prove more attractive to wealth managers.
Enlarged AJOT will have increased capability to take influential positions in companies where there are opportunities to unlock value through active engagement.
Chairman Norman Crighton pointed out AJOT’s portfolio companies currently have 38% of their market cap covered by net cash. They also trade at a weighted average EV/EBITDA multiple of just 9.5 times.
Significant alpha
Bauernfreund insisted rising pressure from regulators and activists presents ‘a compelling opportunity’ to unlock value in Japanese small and mid-caps in 2026 and beyond.
‘With several key tailwinds and a deeply under researched market, our conviction in the strategy remains as high as ever,’ enthused Bauernfreund.
‘We look forward to continuing our active engagement with companies to drive the catalysts needed to grow long-term corporate value and generate significant alpha.’
We view AJOT as a differentiated way for investors to tap into Japan’s reform story. Emulated by many other managers, its winning strategy delivered numerous positive engagement outcomes last year.
Furthermore, the Fidelity Japan merger boosts AJOT’s ability to build influential stakes and deepen engagement with cash-laden companies. However, investors should note that the fund’s short-term returns can lag momentum-driven markets.
Read the press release here: https://www.assetvalueinvestors.com/ajot/#investorinformation
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