This news service has spoken to a UK-regulated fund management house about its investment approach to Japan and India.

Japan has recovered from a multi-decade period of stagnation and is winning investment friends again. India has grown rapidly, with the government reform putting rocket fuel into the economy. 

If investors want to surf the wave of these countries’ success, UK-based investment house Chikara wants to hear from them. The business, a privately held company, concentrates on running long-only portfolios for Indian, Japan and emerging market stocks. Family offices feature in its list of end clients.

For Japan, Chikara looks for companies that have growth and income-generating qualities. When it comes to India, it looks for high-quality companies in a low-penetration sector with big potential. Examples might include the life insurance sector, for example. Others include 5-star hotels and online booking platforms. 

This news service spoke to Theo Wyld, analyst at Chikara. He works as an analyst on the Chikara Japan Income & Growth Fund and the CC Japan Income & Growth Trust plc. For the India part of the conversation, we spoke to Andy Draycott, portfolio manager of the Chikara Indian Subcontinent Fund and Abhinav Mehra, ISFCap Strategic Advisors, independent investment advisor of the fund.

Japan
The benefit of holding stocks with a blend of income and growth characteristics is that growth requirements help avoid value traps and income requirements protect the fund from holding companies on extreme high valuations, Wyld said. 

“In the medium term, the case for investing in Japan is as strong as it has ever been,” he said.

The Chikara Japan Income & Growth Fund has 30 to 40 stocks in its portfolio. It is a UCITS structure and therefore has UCITS limits on position sizing; it has $246 million in AuM and the investment trust has $247 million, taking the total for the strategy to $593 million, based on end-December 2024 figures.

Chikara looks for companies with strong management, cash generative; strong balance sheets, defensible positions, and capacity for growth, Wyld said. 

A result of its bottom-up stock selection is that the fund has an overweight stance in financials, he continued. Rising interest rates have generally been positive for banks and other financial sector organisations. “Mega-banks were a large proportion,” Wyld said. There has, in recent months, been some diversification of the portfolio away from financials, however.

“Income requirements can preclude certain sectors, such as healthcare,” he said. 

Performance for the UCITs fund has been robust. The UCITs fund delivered returns, on yen-denominated shares, of 18.48 per cent last year, and 26.34 per cent in 2023, recovering from 1.71 per cent in 2022. That compares to the TOPIX Net TR Index of 20 per cent, 27.77 per cent, -2.45 per cent, for 2024, 2023 and 2022, respectively. (2022 was a poor year generally for equities.) As for the closed-ended investment trust (CC Japan Income & Growth Trust plc), total returns, based on the ordinary share price, were 8.45 per cent in 2024, 23.01 per cent in 2023 and 1.79 per cent in the previous year. For this London-listed trust, TOPIX TR Index, in sterling, was 10.53 per cent, 12.76 per cent, and 0.46 per cent, respectively.

With Japan’s broad economic story, there have been three main drivers of change: improved cashflow generation by firms; valuation attractions, and corporate governance reforms, Wyld said.

“It was not really until 2013…it took a long time for the drivers of change to come to the fore,” he continued. “For a long time, Japanese companies put all their cashflow into growth…that started to change.”

Before the GFC, Japan traded at a premium to the rest of the world; since around 2012, it has traded at a discount.

Corporate governance reforms, increasing shareholder power, easing the path towards M&A, etc, still have room to run in terms of capital efficiency and returns to shareholders, Wyld said.  

Wyld argues that Japan is a good exemplar of the need for active asset management: “You need to know what you are buying.”

In his view, some listed Japanese firms should not be listed, given that they retain cash and don’t release it to shareholders. 

India 
The country is on an upward slope. India’s household financial net wealth has hit a record 116 per cent of GDP. The rapid and meaningful rise comes down primarily to the way Indian households distribute their assets – specifically, their significant allocation to property, gold, and equities.



As a result, Chikara said it expects a triple threat wealth effect to emerge in India over the coming quarters with the power to supercharge domestic consumption.

“A question to ask is can you afford not to be in India?” Draycott told this publication. 

Among the changes, such as moves towards a more digital economy and “formalisation” of it, has been a “huge jump in domestic savings,” from $1 billion a month to $3 billion, Draycott said.

Draycott warmed to the theme of certain business sectors in India being “under-penetrated.” 

India is more than 20 per cent weighting on the MSCI Emerging Markets Index. “It is going to be the biggest economy in the world by 2030. It is underrepresented in people’s portfolios,” he said. 

“This is an economy where people want to get prosperous,” Draycott continued, noting, for example, the work ethic and that about one million engineers a year are graduating from the Institutes of Technology.

Affluence rising
“As people get richer, discretionary spending goes up. Such sectors will grow 1.5 to 2 times faster than nominal GDP…“People are going to grow private healthcare…they want the most efficient hospitals, with the right results and right locality,” he said. 

In India, for example, Draycott said there are only 400,000 private beds in a country of 1 billion, of which about 200 million count as affluent. Potential is huge.

The Chikara Indian Subcontinent Fund has 27 companies. The fund, which in December 2024 had $112 million in assets (the fund was launched on 20 November 2018), delivered 19.78 per cent performnance (dollars) for 2024, 23.7 per cent in 2023, but fell 10.92 per cent in the tough market year of 2022. The result for 2024 beat the MSCI India Net TR USD Index, at 11.21 per cent.

Consumer goods sectors look generally unappealing apart from alcohol. High-end whisky is an “aspirational” good and popular. One form of portfolio insurance is the fact that certain markets are underdeveloped, so even an improvement that falls short of complete development is a positive result, Draycott said. Another promising sector is aviation and low-cost airlines. The country has 400,000 passenger trips by air a day, and that is likely to rise 10-fold in coming years.