Nippon Active Value (NAVF) made waves in February 2020 with its ambitious strategy to unlock the hidden value within Japanese stocks. Managed by Rising Sun Management (RSM), NAVF has capitalized on the shifting landscape in Japan, where companies are increasingly responsive to shareholder pressure.

RSM’s success with NAVF over the past five years has been impressive, showcasing consistent NAV growth and a total share price return of 79%. This performance positions NAVF as the top-performing overseas equity fund in the UK, without relying on tech stocks or risky bets.

The trust’s focus on Japanese corporate culture has been key to its success. Japanese boardrooms have historically struggled to understand the investor perspective on capital expenditures and allocation. NAVF targets companies with high cash reserves, cross-shareholdings, and inefficient capital spending, aiming to optimize shareholder value.

By analyzing adjusted cash ratios and enterprise value to Ebitda multiples, NAVF identifies undervalued opportunities in its portfolio. This approach provides downside protection and unlocks untapped value within its holdings.

Looking beyond Japan, could a similar strategy work in the UK market? While differences exist, such as the scarcity of cash-rich stocks trading at a discount to book value, opportunities do exist. Companies like Deliveroo and Quilter showcase the potential for unlocking value through cash optimization.

Screening the FTSE All-Share for companies with positive forecast net income and a high adjusted cash ratio reveals a list of potential targets. These companies, with a focus on effective cash management, offer opportunities for shareholder returns and value creation.

In conclusion, NAVF’s success demonstrates the power of a focused strategy on unlocking hidden value in stocks. By identifying companies with excess cash and inefficient capital allocation, investors can uncover opportunities for growth and returns. The key lies in understanding the nuances of each market and capitalizing on unique opportunities for value creation.