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Research: Investment Companies
The Atlantis Japan Growth Fund (AJG) board has announced that it has agreed heads of terms for a proposed combination of its assets with those of Nippon Active Value Fund (NAVF). The proposal is intended to address AJG’s relatively small size – current assets under management (AUM) total c £78m ¬– and follows recent disappointing relative performance. The combination, which is subject to the approval of the shareholders of both AJG and NAVF, offers AJG shareholders ongoing exposure to the attractive investment opportunities available in the Japanese market, especially among cash-rich smaller companies. They may also benefit from the expertise of NAVF’s managers. NAVF has been the top-performing Japanese fund since its inception in February 2020 and its managers have over 30 years’ experience as active managers in this market. The proposal also includes the option for AJG’s shareholders to realise a portion of their cash if desired. The enlarged NAVF will offer all shareholders greater liquidity, as well as a likely reduction in ongoing costs.
Atlantis Japan Growth Fund |
Combination with NAVF offers benefits for all |
Trading update |
Investment trusts |
16 August 2023 |
Fund objective
Analyst
Atlantis Japan Growth Fundis a research client of Edison Investment Research Limited |
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The Atlantis Japan Growth Fund (AJG) board has announced that it has agreed heads of terms for a proposed combination of its assets with those of Nippon Active Value Fund (NAVF). The proposal is intended to address AJG’s relatively small size – current assets under management (AUM) total c £78m – and follows recent disappointing relative performance. The combination, which is subject to the approval of the shareholders of both AJG and NAVF, offers AJG shareholders ongoing exposure to the attractive investment opportunities available in the Japanese market, especially among cash-rich smaller companies. They may also benefit from the expertise of NAVF’s managers. NAVF has been the top-performing Japanese fund since its inception in February 2020 and its managers have over 30 years’ experience as active managers in this market. The proposal also includes the option for AJG’s shareholders to realise a portion of their cash if desired. The enlarged NAVF will offer all shareholders greater liquidity, as well as a likely reduction in ongoing costs.
Main points
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NAVF is a UK investment trust that targets capital growth through the active management of a portfolio of stocks whose operations, or revenues, are mainly driven from Japan. NAVF’s investment adviser, Rising Sun Management Limited, focuses on unlocking the value in under-valued, cash-rich smaller companies. AJG’s board believes this approach aligns with recent developments in Japanese corporate governance, which encourage companies to return cash to shareholders via increased dividends and share buybacks. In the board’s view, active engagement with corporates on these matters has delivered strong returns in recent years and should ensure continued improvement in shareholder returns over time.
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NAVF was launched in February 2020 and has since delivered a total return of 45.6% in NAV terms (in GBP terms), above the TOPIX Index return of c 25% (in GBP terms). This compares with AJG’s NAV decline of c 13% over the same period, which has been due, in part, to the rotation away from the growth stocks favoured by its adviser (see March note for details).
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The proposal to combine with NAVF, which comes after a year of dialogue with AJG’s major investors, offers AJG shareholders a partial cash exit option of up to 25% of AJG’s shares in issue, at a 2% discount to NAV.
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NAVF’s current AUM total c £165m. In addition to the proposed combination with AJG, it is presently completing a merger with Aberdeen Japan Investment Trust, whose AUM total c £93m. Once these two transactions are complete, NAVF’s AUM will total c £336m, providing all shareholders with a much more liquid investment vehicle.
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And with costs spread over a larger pool of assets, AJG’s board expects the ongoing cost ratio of the enlarged NAVF to be ‘significantly less’ than AJG’s.
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The proposal comes ahead of a continuation vote scheduled for AJG’s AGM in December 2023 and is likely to be finalised in the first half of 2024.
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Research: Financials
CoinShares International (CS) delivered another solid set of quarterly results, with Q223 EBITDA of £12.8m versus £8.4m in Q123. Its asset management business generated fee revenue of £10.6m (down from £14.2m in Q222, but up from £9.2m in Q123) as total AUM rebounded to £2.14bn at end-June 2023 from £1.44bn at end-2022. Its capital market infrastructure activities (CSCM) posted a £10.0m gain in Q223, bolstered primarily by fixed income, staking and decentralised finance (DeFi) activities. CS is continuing to develop its active asset management business, starting with running its first strategy to generate a track record ahead of the formal launch towards the end of 2023.