Atlantis Japan Growth Fund : Dec 2022

31 December 2022

ATLANTIS JAPAN GROWTH FUND

CUMULATIVE PERFORMANCE % (£)	YTD	1M	3M	1Y	3Y	5Y	2021	2020	2019	2018	2017	ITD*
AJG Price (total return)	-22.90	3.76	8.51	-22.90	-10.49	-5.01	-10.40	29.58	25.62	-15.52	51.56	209.91
AJG NAV (total return)	-22.53	-2.32	6.62	-22.53	-13.09	-1.27	-9.58	24.07	33.60	-14.97	42.94	259.01
Topix Index (total return)	-4.45	-0.08	4.82	-4.45	6.12	12.25	2.14	8.73	16.05	-8.85	15.63	76.95

Sources:	Northern Trust, Bloomberg and Quaero. The Fund's total return performance is calculated with dividends added back on ex-dividend date.
Notes:	* Inception to date NAV return figure was converted to GBP based on the official USD NAV using Bloomberg FX rate.

KEY FACTS

DIVIDEND POLICY

At the 2019 AGM, shareholders of the Company approved the Board's recommendation to replace the six monthly redemption facility with a regular dividend paid to all shareholders on a quarterly basis set at 1% of the average net asset value per share during the final month of the preceding financial year.

The average daily NAV per share for April 2022 was 215p, thus the four payments in respect of the financial year ended 30 April 2022 will be at 2.15p per share payable at the end of September 2022, December 2022, March 2023 and June 2023. The quarterly interim dividend will be paid out of capital resources.

PERFORMANCE OVER 5 YEARS (£)

50%
	Altantis Japan Growth Fund (total return) - £ NAV
40%	Atlantis Japan Growth Fund (total return) - £ Price
30%	Topix Index (total return) - £ Price
20%
10%
0%
-10%
-20%

-30%

Dec 17	Dec 18	Dec 19	Dec 20	Dec 21	Dec 22
Sources:	Northern Trust, Bloomberg and Quaero. The Fund's total return performance is calculated with dividends added back on ex-dividend date.
Notes:	The figures in the above table and chart refer to past performance which is not a reliable indicator of future results. An investment in the
	Fund would place an investor's capital at risk. Figures shown are net of all fees.

INVESTMENT OBJECTIVE

Aims to achieve long-term capital growth through investment wholly or mainly in listed Japanese equities.

FUND INFORMATION
Lead portfolio adviser	Taeko Setaishi
Lead adviser start date	01 May 2016
Total Net Assets (TNA)	GBP 85m
Shares in issue	41,117,070
Share price	179.5p
NAV per share	205.7p
Discount(-)/Premium	-12.7%
Net gearing	4.7%
Active Share	93.6%
Inception date	10th May 1996
ADMINISTRATIVE & DEALING INFORMATION
Financial Year End	30 April
Company Domicile	Guernsey
Company Legal	UK Investment Trust
Structure
Listing	London Stock Exchange
Valuation	Daily
Company Broker	Singer Capital Markets
Depositary	Northern Trust
Administrator	Northern Trust
Auditor	Grant Thornton
Investment Manager	Quaero Capital LLP
Investment Adviser	Atlantis Investment
	Research Corporation

MANAGER'S COMMENTARY

Performance Review

The Atlantis Japan Growth Fund lost 2.32% MoM in December versus the benchmark Topix Total Return (TR) Index which lost

0.08% MoM. In Japanese yen terms, the fund lost 6.70% MoM versus a loss of 4.57% MoM for its benchmark, the yen having gained 4.7% against sterling during the month.

December proved to be a rather eventful month and perhaps an inflection point in global central bank policy. The US Fed slowed the pace of tightening, raising the Fed Funds rate by only 0.5% in December, while ECB comments went as far as suggesting a possible easing in 2023. While the reopening of China has potential inflationary implications, the consensus is that we may have passed the peak and that

there are now growing concerns of economic recession in 2023.

This contrasted a week later with the Bank of Japan, in a surprise move, widening its yield target band on 10-year JGBs to 50 basis points. This caused the yen to strengthen from JPY 137/$ to JPY 132/$ and has effectively put a floor under the yen's weakening trend. The BOJ's move was met with a sell-off of exporters on the view that their currency profit gains would fall back going forward, while higher interest rate beneficiaries such as financials gained. Value once again outperformed growth in terms of style.

Sectors which outperformed for the fund included Banks and REITs - benefiting from strength in interest rate sensitive financials

DIVIDEND
12 months dividend yield	5.6%
Quarterly interim paid	March, June,
	September and
	December
COMPANY FEES & EXPENSES
Ongoing Charges*	1.65%
Annual Management Fee	1.00% up to £125m

	0.85% between £125m-£175m
	0.70% greater than £175m
FUND CODES
Bloomberg	AJG LN
SEDOL	B61ND55
ISIN	GG00B61ND550

• Based on the Company's Annual Financial Statements to
  30 April 2022.

Quaero Capital LLP | 2-4 King Street, London SW1Y 6QL | [phone] | [e-mail]

www.atlantisjapangrowthfund.com

and continued recovery in inbound names - while sectors that detracted from performance included Information and Communications and Electrical Appliances. Stocks that outperformed in the Fund included Intloop (9556 JP), a freelance system/software support service, mega bank Sumitomo Mitsui Financial Group (8316 JP) and the mid-sized hotel REIT, Invincible Investment (8963 JP). Stocks that underperformed included last month's top performer EDP (7794 JP), the outsourced software testing company Shift Inc (3697 JP) and Cellsource (4880 JP) which is a specialist in regenerative medical technology.

Investment activity

After having reviewed the portfolio at the beginning of December we took the decision to cut some of our smaller, lower conviction names and to increase concentration into our higher conviction positions. As a result, the number of positions at the end of the month was 53, down from 61 held at the end of November.

Over the course of the month, the Company's weighting in the Electric Appliance sector continued to decline from 16.7% to 12.9%, while the weighting in Information and Communications fell from 22.5% to 21.0% as we shifted slightly away from more cyclical names. Meanwhile we increased our weighting in Services from 23.1% to 25.5% and in Banks from 3.4% to 4.9%.

We took profits and sold out of GMO Internet (9449 JP), Nittoku (6145 JP) a manufacturer of automatic winding machines, and other cyclical names. We increased our position in Invincible Investment Corporation (8963). This REIT stands to benefit substantially from the recovery of Japan's tourist industry, but its share price is still substantially below pre-COVID highs, and the return of Chinese inbound tourism is likely some time in 2023. The Fund is fully invested in equities and does not hold bonds, nor derivatives, and the currency is not hedged.

Outlook

The market's focus has shifted from inflation and rising interest rates to concerns of a looming recession in 2023. Inflation and supply chain disruptions remain risks particularly as China's abrupt end to its zero- Covid policy has resulted in a new wave of infections.

We would draw attention to Japan's nominal GDP level which has been flat for several decades. Nominal GDP is the basis for tax revenue, so the Ministry of Finance and by extension the Bank of Japan are keen to see this start to rise. Two of the main drivers are consumer spending and corporate capex. In order for consumer spending to increase, we need wage growth as well as a revival of "rational expectations" (of inflation). Corporate capex spending is driven by the need to increase efficiency, in the face of labour shortages, and to improve competitiveness. In the most recent Japanese GDP data for Q3 2022 which was down overall (reported on 8th December), nominal private sector domestic demand rose 7% YoY (i.e., consumer spending and corporate capex). This was the highest increase in many years which suggests a possible recovery and moderate inflation taking hold. Japan's PPI has already risen sharply (+9% YoY in November) far outpacing CPI (+3.8% in November) and we expect companies to gradually increase consumer-facing prices, perhaps with product and service upgrades to gain acceptance with the impression of adding value. Companies have reduced costs significantly during the pandemic and while currency gains could be pared going forward, commensurate cost reductions as well as price increases could more than offset. They are also cash-rich and have been increasing shareholder returns through dividend hikes and share buybacks. Valuations are attractive with the Topix Prime section forward PER of 13.0x, PBR of 1.11x and a dividend yield of 2.62% as of 30th December.

The dynamic of a stabilizing yen could also serve to improve foreign investor sentiment towards Japan particularly if they stop experiencing currency losses on their holdings as they have in the recent past.

The Fund continues in its long-term traditional bottom-up approach, based on solid fundamentals and daily interviews of company managements across the year. It is focused on structural growth areas of the economy such as those related to digital transformation and solutions for Japan's changing demographics, as well as new technological developments and companies that display unique business models with strong moats.

PORTFOLIO STATISTICS

MARKET EXPOSURE	104.7%
TOP 10 HOLDINGS	(% TNA)
Intloop	3.8
Japan Material	3.6
Internet Initiative Japan	3.3
Amvis Holdings	3.0
Sumitomo Mitsui Financial Grp	3.0
Shift	3.0
Oxide	2.9
Plus Alpha Consulting	2.8
Premium Group	2.6
EDP	2.5
SECTOR BREAKDOWN	(% TNA)
Consumer Discretionary	10.1
Consumer Staples	2.1
Financials	10.2
Health Care	6.3
Industrials	27.8
Information Technology	34.3
Materials	2.1
Real Estate	6.1
Communication Services	5.8
MARKET CAPITALISATION	(% TNA)
> 10bn	17.3
5-10bn	3.9
2-5bn	14.0
0.5-2bn	25.3
< 0.5bn	44.2

CONTACTS

INVESTOR RELATIONS

Contact:	Henry Pollard
Phone:	[phone]
Email:	[e-mail]
FUND BROKER
Contact:	James Waterlow
Phone:	[phone]
Email:	[e-mail]

Quaero Capital LLP | 2-4 King Street, London SW1Y 6QL | [phone] | [e-mail]

www.atlantisjapangrowthfund.com

KEY RISKS

• Past performance is not a reliable indicator of future results. The value of your investment may go down as well as up and you may not get back the amount originally invested.
• The Fund may be invested in securities denominated in currencies other than Sterling. Changes in exchange rates may cause your investment to decrease or increase in value.
• The Fund, as an investment trust, is a public limited company, the shares of which are traded on the London Stock Exchange. Investment trusts are not authorised and regulated by the Financial Conduct Authority.
• Investment trusts may borrow money in order to make further investments. This is known as 'gearing' or 'leverage'. The effect of gearing can enhance returns to shareholders in rising markets but will have the opposite effect on returns in falling markets.
• The Fund may invest in smaller companies which are generally considered to carry a higher degree of risk as the market for their shares is often less liquid than that for larger companies.
• An investment trust's exposure to a single market and currency may increase the level of risk.

IMPORTANT INFORMATION

This newsletter is prepared on behalf of Atlantis Japan Growth Fund Limited (the "Fund") by Quaero Capital LLP ("Quaero"), which is authorised and regulated by the United Kingdom Financial Conduct Authority ("FCA") with registered number 434203. Quaero is registered in England & Wales under number OC314014 and has its registered office at 2-4 King Street, London SW1Y 6QL. This newsletter does not constitute an offer of or solicitation to buy shares in the Fund ("Shares"). The key information document ("KID") contains detailed information on risk factors and fees that may apply and should be read carefully before investing. No investment decisions should be made without first reviewing the KID (available in English) for the Fund which can be obtained from www.atlantisjapangrowthfund.com or requested directly from Quaero via email at [e-mail] or by calling us on [phone].

This newsletter is being communicated by Quaero only to persons who qualify as (a) eligible counterparties, (b) professional customers or (c) exempted recipients under any of the exemptions to section 21 of the United Kingdom Financial Services and Markets Act 2000 (FSMA). Investors in the Fund will be shareholders in the Fund and not customers of Quaero. As such they are advised that in respect of an investment in the Fund they will not generally benefit from the protection of FSMA and provisions made thereunder or the United Kingdom Financial Services Compensation Scheme and will not have access to the United Kingdom Financial Ombudsman Services in the event of a dispute. Past performance is not necessarily a guide to the future performance. The value of Shares in the Fund and the income derived from them may go down as well as up. Changes in rates of exchange may be one of the causes of the value of investment in the Fund to go up and down. This newsletter is written for the benefit of the category of persons described above. It is not addressed to any other person and may not be used by them for any purpose whatsoever. It expresses no views as to the suitability of the investments described herein to the individual circumstances of any recipient.

Copyright Quaero Capital LLP 2023. All rights reserved.

Quaero Capital LLP | 2-4 King Street, London SW1Y 6QL | [phone] | [e-mail]

www.atlantisjapangrowthfund.com