AVI Japan Opportunity Trust made this proposal public, ahead of the Fidelity Japan Trust continuation vote in May.

AVI Japan Opportunity Trust (AJOT) has proposed to merge with Fidelity Japan Trust (FJV), aiming to create a market-leading Japanese investment trust. The former made this proposal public, ahead of the FJV continutation vote in May

Joe Bauernfreund, investment manager of AJOT and CEO of Asset Value Investors, told this news service that AJOT is a top performing trust in Japan, working to improve shareholder returns. He thinks both sets of shareholders will benefit from the merger which aims to create a larger combined entity, providing increased liquidity and cost benefits and adding more firepower to AJOT’s activist investment approach in Japan.

UK-domiciled AJOT is a "top performer" across Japan focused open ended investment companies, significantly outperforming the index over a one, three and five-year period. It aims to achieve capital growth by investing in small-cap, Japanese equities.

“The AJOT board has closely followed Fidelity Japan Trust, its public disclosures, performance and its interactions with shareholders and the market over the last few years,” Norman Crighton, chair of AJOT, said. “We have sought to engage with the FJV Board on numerous occasions to discuss the combination of the two companies to create a market-leading Japanese investment trust.”

“We were disappointed to read in FJV’s final results statements that the FJV board recommends a continuation of the status quo, with no liquidity offered until 2028, instead of engaging in constructive dialogue regarding our proposal, which we believe is in the best interests of all shareholders,” he added.

Fidelity Japan’s shareholders will vote on the trust’s continuation on 21 May. The board has so far recommended voting in favour of continuation, and has not yet commented publicly on the merger proposal.

However, FJV’s largest shareholder, the City of London Investment Management, which owns a 23 per cent stake, has publicly supported the merger

“City of London Investment Management supports consolidation in the UK investment trust sector,” Michael Sugrue, City of London Investment Management, said. “We believe trusts that deliver outperformance whilst protecting shareholder value through active discount management should be the beneficiaries.”

“The manager of AJOT has delivered strong investment performance since inception and the ongoing discount control mechanisms implemented by the board have protected shareholder value in an environment where many other closed end funds have seen their discounts significantly widen,” Sugrue added.

“The investment case for the country is extremely compelling. We believe that now is the time to strengthen our position which is why we are proposing to merge with Fidelity Japan Trust. An enlarged asset base will enable us to be a more dominant shareholder in the companies we invest, making our engagement even more likely to succeed,” Bauernfreund said. “FJV shareholders rolling into AJOT will benefit from an immediate uplift in the market value of their shareholding, given AJOT’s current discount.”