WS Zennor Japan Equity Income

The team at Zennor seeks to identify compelling investment opportunities in Japan through three distinct categories of dividend companies: those with capital discipline that can enhance dividends via increased payout ratios or share buybacks; those with earnings growth driving dividend increases; and those offering high, well-protected current yields.

Zennor views Japan’s ongoing corporate governance revolution — marked by new corporate and stewardship codes, and the rise of activist investors — as the catalyst for unlocking long-hidden value. With many smaller companies trading below liquidation value and more than half of the market lacking analyst coverage, Zennor sees substantial inefficiencies across the market-cap spectrum.

Portfolio construction is entirely opportunity-driven rather than benchmark-led. The team focuses on undervalued stocks with identifiable catalysts, combining diverse ideas with unique, company-specific drivers, rather than concentrated macroeconomic bets. Potential investments are initially screened through local due diligence and prioritised based on valuation, management quality, macroeconomic sensitivity, sustainability factors, and structural trends.

The investment approach is deeply valuation-focused, with a preference for stocks offering a significant margin of safety and strong upside potential. Decision making is collaborative between the two portfolio managers, with James Salter holding final authority as lead portfolio manager. The team meets weekly to review existing holdings and new ideas, with the ability to act swiftly when necessary. The output of this rigorous process is a portfolio of between 25 and 40 positions that has a natural overweight to the mid- and small-cap parts of the Japanese market.

Market risk is managed through the investment process, with the managers avoiding overvalued or speculative companies and maintaining diversified portfolios to perform across market conditions. Operational risk is actively managed through a robust framework overseen by Zennor’s seven-member board, the fund’s Ucits management company, and the operations team, all of whom review internal control reports from outsourced administrators. Regular investment committee, operational, and risk meetings ensure continual oversight. The fund is also monitored against Ucits and mandate rules, stress-tested, and subject to detailed liquidity reporting. Together, these layers of governance and process embed risk control at every level of Zennor’s business.

Zennor integrates ESG considerations throughout the entire investment process — from idea generation and risk assessment to portfolio construction and stewardship. As long-term investors focused on capital preservation, Zennor believes that understanding ESG risks is essential to fully evaluate a company’s opportunities and challenges. The firm views sustainability as aligned with shareholder value, analysing companies through the lens of how they create and sustain long-term value. Zennor recognises that businesses failing to adapt or demonstrate responsible behaviour face regulatory, reputational, and financial penalties, while those improving their sustainability practices can achieve superior performance.

Zennor places particular emphasis on improving corporate governance in Japan, engaging directly with management teams and other investors to drive better governance, capital allocation, and operational performance. The firm has developed a proprietary sustainability screening system covering over 2,000 companies, producing detailed environmental, social, and governance ratings. This analysis, combined with external data sources, informs Zennor’s quantitative and qualitative investment assessments.