ZENNOR JAPAN EQUITY INCOME FUND: Japan specialist who thrives by following the laws of Warren Buffett

Fund manager James Salter thinks this is a good time to be an ‘off-piste’ investor, one who doesn’t follow the herd.

Like many investment experts, he is concerned that the US stock market is currently priced “to perfection” – fully valued – and could collapse if President-elect Donald Trump’s measures to stimulate the US economy do not work.

Salter, who founded boutique investment house Zennor Asset Management in 2020, says: “You could argue that the big US tech companies represent a special situation because of their involvement in artificial intelligence (AI).

“But the investment risks are significant, especially if the positive economic growth story that Trump is telling us doesn’t materialize, leading to a broader global economic slowdown. All stock markets would then suffer.’

While Salter accepts that the two funds he and co-founder David Mitchinson run – Zennor Japan and Zennor Japan Equity Income – would not escape such a correction in global share prices, he believes their eclectic composition would make them more resilient than many others investment funds.

“I am a big supporter of the American investor Warren Buffett,” he says. “Preserving our investors’ capital is crucial, so I never forget Buffett’s two rules for successful investing. Rule one: don’t lose money. And if you ask about the second rule: don’t forget the first.’

Both funds are based on these two ‘rules’, but Japan Equity Income is the more conservative.

The modus operandi is largely based on identifying off-the-radar Japanese companies that have huge amounts of cash on their balance sheets – and then gently persuading them to use some of that cash to either pay dividends return to shareholders, or buy back shares.

“I call it off-piste investing,” says Salter, “and it delivers stable investor returns.”

The performance figures prove this. Since its launch in spring 2023, Japan Equity Income has generated a total investor return of 19 percent – ​​better than the average Japanese fund over the same period of 17 percent.

Fishing for Japanese companies rich in minnow money is not something most Japanese fund managers are willing to do. But Salter and Mitchinson, who have run Japanese funds for 60 years, thrive on it.

“Together we go to Japan at least six times a year to visit companies,” says Salter. ‘We also have advisers here in Britain and Japan looking for ideas – and we screen a lot of Japanese stocks to identify potential winners.’

Japan Equity Income, a £125 million fund, is invested in 42 stocks. Casting and civil engineering company Kurimoto, a top 10 holding company, is typical of the companies its managers look for: cash-rich and little attention from market analysts.

“We’ve been to management a few times,” says Salter, “and we hold regular virtual meetings with them. Slowly but surely, we have encouraged the company to reduce its balance sheet. You could say it’s a boring, slow-growing business, but it gives us a dividend of 5 percent a year – and the prospect of more to come.’

Zennor has around £800 million in assets under its belt and has no desire to expand its investment focus outside Japan. “If we were to adopt other investment strategies,” says Salter, “we would end up as a jack of all trades, but a master of none.”

The fund is on most investment platforms and annual fees total 0.92 percent.