Darren Turgel DirectorsTalk Managing Director caught up with Eiji Saito Portfolio Manager of the JPMorgan Japan Small Cap Growth & Income Fund last week to discuss growth opportunities in digitalisation. Darren asked:
Q. I think we would consider Japan to be a very mature economy & so perhaps some investors might be surprised to hear that there are so many growth opportunities in digitalisation? Can you help us with some examples please?
A. Firstly, we have invested in many digitalisation stocks over the years & our exposure to the Information Technologies sector is currently around 30% in the portfolio.
In Japan, it is a safe & comfortable country to live in and we Japanese haven’t have strong motivation to change our lifestyle & workstyle until recently. However, COVID-19 is a real wake-up call & digitalisation is accelerating in Japan to improve our labour productivity.
The first example is in e-commerce. The chart shows how low the percentage of cashless payments are in Japan compared to many other economies. We invest in a company called BASE which provides e-commerce software & BASE is growing rapidly as its service enables small operators & individuals to make their own e-commerce shop.
We also invest in a company called PLAID which offers a customer experience software platform & using PLAID service, retailers can visualise customers who visit their online stores & find out what visitors are truly looking for.
The second example is Cloud Infrastructure. Bengo4.com offers Cloud Sign – a cloud-based service for digital contracts. Japanese companies have typically used paper documents & personal stamps called Hanko but now, more & more companies are using Cloud Sign to improve labour productivity.
Money Forward is another example in the area and provides a wide range of cloud software including accounting software, payroll calculations, expense management & attendance management. Penetration is still very low in Japan & the cloud software market has plenty of room to grow.
We continue to find many excellent growth opportunities in Japan’s small cap market as smaller companies are really leading the digitalisation of Japan. Japan Income fund, JPMorgan Japan Small Cap Growth & Income plc (LON:JSGI), targets Japan income without compromising on Japanese growth opportunities. This Japan fund is an income investing opportunity that gives investors access to a diverse and fast-growing sector managed by local managers. The Investment Trust offers a regular quarterly income without compromising on Japanese growth opportunities, by paying a higher dividend funded part by capital reserves as well as revenue returns.