AVI Japan Opportunity Trust

AVI Japan Opportunity’s investment philosophy is based on the belief that markets are inefficient, with areas of the stock market being neglected or overlooked by investors, creating mis-pricings that the team seeks to exploit through bottom-up fundamental research. This is particularly the case in Japan, where the small-cap space is overlooked due to limited sell-side research and poor company disclosure. The aim is to identify these companies and actively engage with senior management to drive these businesses towards improving corporate value and generating shareholder return.

The team cover an investment universe of approximately 3,700 companies, looking for appropriate opportunities based on metrics like profitability, valuations and businesses with substantial net cash and securities relative to the size of the business. Businesses in low-quality sectors and with significant allegiant shareholders (e.g., cross-shareholders) are removed from consideration. Ideas are also sourced through sell-side analyst meetings and internal industry research.

The team then take a closer look at the roughly 70 companies remaining to see which meet their quality and valuation criteria. Further qualitative research is then undertaken on the businesses – focusing on the likes of return on assets, earnings stability and growth outlook – coupled with discussions with management. The team also evaluate managements’ openness to their suggestions and analysing the shareholder register to gauge likely support. The team will avoid companies where management is unresponsive or where radical change is needed to address a lowly valuation.

The result is a high-conviction portfolio of 15-25 names. These names are typically held for three to five years, although some can be held for longer.

Investing in Japan always carries high risk, which can be accentuated in this trust as it tends to invest mainly in smaller-sized companies that are traditionally more volatile than larger companies. Gearing can also increase volatility. However, the trust’s focus on quality businesses and consistent engagement is designed to limit these concerns.

AVI Japan Opportunity’s engagement focuses on ESG factors, using their proprietary scoring and monitoring system to guide constructive dialogue with companies. While they aim to influence positive change as long-term investors, divestment may occur if engagement on material ESG issues proves ineffective and risks becoming untenable. Their buy, hold, and sell decisions balance ESG considerations with financial performance and fiduciary responsibilities.

AVI asks each company to complete a proprietary ESG questionnaire, which they evaluate to form a view on the company situation and the reform required.

AVI will not invest in any company with direct involvement in tobacco, pornography or controversial weapons whereby more than 5% of that company's NAV is derived from these activities. AVI will also not invest in companies that engage in child labour or human exploitation. The firm is also a signatory to the UNPRI which works towards the broader sustainable objectives of society as defined by the UN's SDGs.

AVI Japan Opportunity Trust has an unsecured revolving credit facility arranged with The Bank of Nova Scotia. A revolving facility means the trust can draw down and repay funds flexibly as required, up to the agreed limit. As of March 2025, this facility was increased to ¥6.6 billion (approximately £34.5 million).

The trust’s investment policy caps total borrowings at 25% of net assets at the point of drawdown, though actual gearing is typically lower (2% at 5 February 2026).

AVI Japan Opportunity Trust has typically traded at a slight discount to NAV (1.6%) over the past five years*. It should be noted it has been close to par since launch in 2018.


*as at 5 February 2026