Japan Smaller Capitalization Fund Offers Lower Price-to-Book Ratio Compared to DFJ

JOF is a closed-end fund from Nomura with a solid history of performance, even net of fees. It is a lower PBR bet compared to DFJ. The fund's past performance does not guarantee future success, but it has a track record of stability.

The Japan Smaller Capitalization Fund (JOF), a closed-end fund managed by Nomura, has recently declared a monthly dividend of $0.0887 per share, offering a forward yield of 9.87%. This dividend is payable on October 31, November 28, and December 31, with record dates preceding each payment date by 15 days, respectively Japan Smaller Capitalization Fund declares $0.0887 dividend^[1].

JOF is known for its lower Price-to-Book Ratio (PBR) compared to other funds like the WisdomTree Japan SmallCap Dividend Fund ETF (DFJ). The fund's strategy involves investing in smaller-cap Japanese companies with potential for capital allocation improvements, a key source of alpha in the Japanese market. While actively managed and carrying a higher fee of 1.3%, JOF's performance, net of fees, has been decent, with an annualized return of 3.83% since inception, and a 3-year return of 20.6% JOF: A Lower PBR Bet Than DFJ^[2].

The fund's past performance, while not guaranteeing future success, demonstrates stability. JOF's focus on lower PBR companies indicates a belief in the potential for undervaluation and improvement in financial efficiency. The fund's top holding accounts for 6.39% of assets, with a total of 24 holdings. This concentration is typical of actively managed funds.

JOF's strategy of investing in companies with low PBRs and high cash balances aligns with the broader trends in the Japanese market. Many of these companies are addressing cross shareholdings and engaging in M&A activities, signaling a willingness to improve capital allocation and operational efficiency.

While JOF offers a more aggressive bet into lower PBR companies, investors should be aware of the higher fees and the risk associated with actively managed funds. However, for those seeking exposure to the Japanese small-cap market with a focus on capital allocation improvements, JOF may be a viable option.