Japan's Stewardship Code
1. Acceptance of Japan's Stewardship Code
Nippon Value Investors declares that it accepts the Principles for Responsible Institutional Investors (“Japan’s Stewardship Code”).
2. Our Policy on Japan’s Stewardship Code
Our policy on the principles of Japan's Stewardship Code is as follows.
Principle 1: Institutional investors should have a clear policy on how they fulfill their stewardship responsibilities, and publicly disclose it.
Nippon Value Investors KK (hereafter “we”) is an independent investment management firm that specializes in value investment in Japanese equities based on a bottom-up approach.
We invest in companies that are carefully selected with respect to their quality and valuations. In addition, we hold meetings with investee companies and vote at their shareholder meetings. Through these activities, we aim to help improve the corporate value and capital efficiency of investee companies and grow their shareholder value. We believe that this ultimately leads to increasing the intrinsic value of our portfolio, thereby enhancing the medium- to long-term return on investments for our clients and beneficiaries.
We invest in companies that are undervalued yet strong regarding business operations, financial condition, and management according to our research and analysis. In addition, we urge the management of investee companies to be more mindful of the need to achieve sustainable growth of corporate value and to enhance capital efficiency and sustainability from ESG point of view. We do this by holding meetings with the companies and voting at their shareholders’ meetings, as the fiduciary for our clients and beneficiaries.
Principle 2: Institutional investors should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it.
As an independent investment management firm, we make decisions of our own about investments and proxy voting. If we think that there is a possibility of conflicts of interest with an investee company with which we have a business relationship, we will give the highest priority to the interests of clients and beneficiaries and conduct our operations in accordance with our internal rules and guidelines to properly manage the conflicts of interest. Also, our Compliance staff checks all transactions with possible conflicts of interest in advance.
Principle 3: Institutional investors should monitor investee companies so that they can appropriately fulfill their stewardship responsibilities with an orientation towards the sustainable growth of the companies.
We believe that appropriately monitoring the current status of investee companies is an essential element of our bottom-up approach for value investment.
For value investing, we assess the quality of investee companies and the degree to which their stock prices are undervalued.
To assess the quality of a company, we evaluate its business operations, financial condition, and management. In specific terms, this process entails examining the sustainability of competitiveness; medium- to long-term earnings growth opportunities; the ability to generate cash; financial soundness; past performance; progress of solving ESG issues; and many other items. We perform these assessments by analyzing information obtained in many ways. For example, we meet with company executives, attend earnings announcements, study information available to the public, talk with sell-side analysts, and use other activities.
To assess the valuation of a stock, we use primarily three metrics: PER, PBR, and the dividend yield. For the PER, we use the level of earnings that we believe a company can sustain in a normal operating environment. For the PBR, we examine the reliability of a company’s book value. For the dividend yield, we consider a company’s ability to maintain the current level of dividends.
We update our assessments of the quality and valuation of investee companies periodically or when a significant change has occurred. Every member of our investment management team participates in the entire process and fully examines the current status of a company before reaching investment decisions.
Principle 4: Institutional investors should seek to arrive at an understanding in common with investee companies and work to solve problems through constructive engagement with investee companies.
Seeking to arrive at a mutual understanding with investee companies on how to achieve sustainable growth of corporate value and on how to enhance capital efficiency and working to solve problems are key elements of our bottom-up, value investment.
To accomplish these goals, we maintain relationships with investee companies through engagements with executives and votes at shareholder meetings. In addition, if it is necessary, we also make important proposals to investee companies by way of shareholder proposals. These activities are intended to make the executives of investee companies more mindful of the importance of achieving sustainable growth of corporate value, enhancing capital efficiency, and of solving problems on significant ESG issues.
Our engagements with investee companies are based on medium- to long-term perspectives. As a result, we believe that we are less likely to receive information about undisclosed material facts. If we receive such information, we treat them based on internal rules in order to ensure compliance with insider trading regulations.
Principle 5: Institutional investors should have a clear policy on voting and disclosure of voting activity. The policy on voting should not be comprised only of a mechanical checklist; it should be designed to contribute to the sustainable growth of investee companies.
We believe that using our best effort for voting plays an important role in helping improve business operations and governance at investee companies and that these improvements lead to achieving sustainable growth of corporate value. This ultimately contributes to higher medium- to long-term investment returns for our clients and beneficiaries.
In our voting process, our investment managers, who have an in-depth knowledge of investee companies, make voting decisions for all proposals. These decisions are reached in accordance with our internal rules and guidelines. Furthermore, we make our decisions from the standpoint of whether each proposal will contribute to achieving sustainable growth of the companies over the medium- to long-terms.
Our proxy voting policy is posted on our website. In addition, we report our voting records, which include management proposals that we voted against and the reasons for them, every year in the reports we send to clients and beneficiaries. This information is publicly available on our website, too.
Please note, we do not publicly disclose all of our proxy voting results neither by each company nor by each agenda. This is because our investment program invests in relatively limited number of companies and we think that publicly disclosing all the names of our investee companies may become against the interest of our clients and beneficiaries.
Principle 6: Institutional investors in principle should report periodically on how they fulfill their stewardship responsibilities, including their voting responsibilities, to their clients and beneficiaries.
We believe that it is important to give our clients and beneficiaries a better understanding of our stewardship activities because this leads to increasing medium- to long-term investment returns for our clients and beneficiaries. We include reports on these activities in the reports we sent to clients and beneficiaries on a regular basis. In addition, we report stewardship activities as needed during our meetings with clients and beneficiaries.
Principle 7: To contribute positively to the sustainable growth of investee companies, institutional investors should develop skills and resources needed to appropriately engage with the companies and to make proper judgments in fulfilling their stewardship activities based on in-depth knowledge of the investee companies and their business environment and consideration of sustainability consistent with their investment management strategies.
We believe that it is important for our value investment based on the bottom-up approach to make proper judgments in association with engagements with investee companies and stewardship activities. Making these judgments requires acquiring an in-depth knowledge of the investee companies and their business environments.
Since starting our investment operations in 2006, our investment team has managed all the investment decision processes by serving as both research analysts and portfolio managers. All team members are highly experienced and embrace the same investment philosophy and process. They make investment decisions together after sharing all pertinent information. In addition, they conduct engagements with investee companies and make decisions about voting based on in-depth understanding of these companies and consideration of sustainability consistent with their investment strategies.
Nippon Value Investors is determined to continue refining our capabilities in order to make proper decisions with regard to our stewardship activities.
Principle 8: Service providers for institutional investors should endeavor to contribute to the enhancement of the functions of the entire investment chain by appropriately providing services for institutional investors to fulfill their stewardship responsibilities.
Principle 8 is not accepted because we do not provide institutional investor services.
Updated: August 2023