CC Japan Income Growth Trust PLC

The NAV per share of CC Japan Income & Growth Trust fell by -3.59% in July, whilst the share price fell -7.52% and the Topix TR Index rose 0.10%, (all returns on a total return, sterling adjusted basis). The story of July was a loss of confidence in the 'AI-trade'. A blistering rally in semiconductor-related stocks, driven partly by valuation expansion, had left the market susceptible to any pause in the hitherto upward trend in expectations for the sector. A global rout in technology-related names ensued, and the portfolio was naturally somewhat affected.

To give context to these moves we can use the SOXX as a proxy: an ETF composed of US-listed equities in the semiconductor sector. In Q2 the ETF produced a total return of 95% in USD terms. July's reversal of -21% wiped out close to half of those gains in short order. And in just the first two trading days of August the ETF has rallied over 7%, taking its year-to-date total return to a stellar 80%. This volatility can be difficult to manage, of course, but at Chikara we try to focus on the longer-term fundamentals. That being said, with global markets approaching all-time highs, and performance concentration similarly so, the vulnerability to any correction is elevated, making risk management in the portfolio a key focus.

The large Financials weighting in the Fund continued to support performance, with six of the top seven contributors over the month. It was also pleasing to see a reversal in fortunes for some of the more out of favour names such as Shimano, Nintendo, and Insource. As discussed above, the detractors were semiconductor-related with Tokyo Electron, Kioxia, and Shin-Etsu Chemical together costing the Company over 300bps of performance.

In June's newsletter we alluded to some exciting opportunities in the overlooked areas of the market and we are pleased to say this resulted in a new position in BayCurrent. BayCurrent is an IT consulting firm whose shares suffered a severe de-rating as confidence in its industry was rocked by the threat of AI. Japanese firms were treated with similar distain to their international peers such as Accenture, whose shares have more than halved since the start of 2025. However, as is often the case, the Japanese do things differently when it comes to this industry – more than 70% of IT professionals are employed by IT services/consulting firms, with only 30% being employed by corporates themselves. This is the exact reverse of the US, for example, whose companies have plenty of high-skilled employees to implement AI-driven enhancements. Japanese corporates, however, require external support and this is precisely where BayCurrent come in. In fact, during a recent meeting with company representatives they shared that over 40% of their current projects are AI-related. The market tarred all companies with the same brush and that gave us the chance to buy into a high-quality company, growing its revenues at c.30%, at a sub-20x price to earnings multiple.