Nicola Takada Wood, Asset Value Investor’s managing director for Japan, outlines the investment case for AVI Japan Opportunity Trust (AJOT). This active engagement strategy capitalises on the increased focus on corporate governance, balance sheet efficiency and shareholder returns in the Land of the Rising Sun.
Nicola says global asset allocators have consistently overlooked Japan for decades. For this and many other reasons, she tells our audience why investors haven’t ‘missed the boat’.
Our special guest explains AJOT’s investment process, which selects the most promising opportunities from frequent screening and comprehensive research. Takada Wood drills down on the trust’s constructive approach to engagement and also highlights some of the most exciting names in this highly-concentrated portfolio includong two logistics companies.
Manager’s response to supplementary question
Have you ever had your activist approach rebuffed by a company and had to sell your stake? Have you ever had to take a more hostile approach or will you tend to walk away? Has this meant you have lost opportunities?
We learned this important lesson early in the strategy’s development, particularly when it was being incubated within the global fund. Since then, we have been very deliberate about investing only where there is a genuine opportunity for constructive engagement.
Before making an investment, we meet with management to assess their openness to dialogue. We carefully evaluate the shareholder register to understand the broader governance dynamics. There is little value in pushing on a completely closed door as it’s not an efficient use of investors’ capital.
Fortunately, plenty of companies recognise the need for change, particularly in Japan, where corporate governance reforms and increased expectations from the Tokyo Stock Exchange have created a much more receptive environment for shareholder engagement.
That said, circumstances can evolve over the life of an investment. New management teams or board members may be appointed, or existing leadership may become less receptive over time. In those situations, we have a range of escalation tools available. These include shareholder proposals, removing or replacing board members, launching public campaigns or even minority tender offers.
This is also why we intentionally build meaningful ownership positions. Larger stakes give us greater credibility and stronger alignment with other shareholders. Moreover, they provide the influence needed to help accelerate change when constructive engagement alone is not enough.
Further response
Does the corporate governance reform story have further to run in Japan, particularly towards the lower reaches of the market?
2026 looks to be a significant point in Japan’s corporate governance journey with the Financial Services Agency (FSA) currently undertaking its first review of the Corporate Governance Code since 2021. Following its third consultation meeting post-March, we expect proposed revisions to focus on accelerating and clarifying timelines for corporate capital efficiency improvements.
While no formal timeline has been announced, we think the revisions will be finalised around September. The Code review dovetails with the Prime Minister’s pro-market rhetoric, with a focus on accelerating capital efficiency improvement measures, such as timely liquidation of investment securities. While large-cap companies were early beneficiaries, we are increasingly observing reform momentum filtering down into our small- and mid-cap universe.
A recent meeting with the Japan Exchange Group highlights ongoing coordination between the Tokyo Stock Exchange and the FSA. Future initiatives are closely aligned with Corporate Governance Code reforms. Notably, October 2026 will mark the beginning of a two-year restructuring of the TOPIX index.
Companies will be assessed annually against “continuation criteria,” with the number of constituents expected to decline from 1,700 to 1,100. Given small/mid-cap companies will struggle most to meet the continuation criteria, they will be under the most pressure to change.
