Shares in abrdn’s Japan Investment Trust leapt 9% on Thursday as the board announced it has agreed a deal in principle to merge assets with the £159m ($197m) Nippon Active Value Fund.
The £72m abrdn trust has underperformed its benchmark, the Topix index, over the one, three, and five years to 15 May 2023, and it traded at an average discount of nearly 14% during its discount monitoring period, the 90 days leading up to 31 March.
This sat well outside the trust’s target of 10%, meaning a continuation vote had to be put to shareholders.
The trust’s board said the proposed merger gives shareholders access to a focused and differentiated investment opportunity, a partial cash exit option and a larger continuing investment trust with the prospect of improved liquidity.
Shareholders will be able to realise part, or potentially all, of their investment in the trust via a cash exit for up to 25% of issued shares. These would be sold at a 2% discount to the trust’s formula asset value per share.
As part of the proposed merger, Nippon Active Value Fund (NAVF) plans to move to a premium listing on the main market of the London Stock Exchange, which abrdn expected to improve its access to retail-investors.
Chair Karen Brade said the proposal followed a “very thorough and comprehensive review”, adding that it was a “highly desirable opportunity” for shareholders.
“We believe the most compelling Japanese strategy, to achieve strong, uncorrelated returns, is active engagement with undervalued small and mid-cap companies. NAVF is already pursuing this strategy and we believe is well positioned to deploy our additional capital and to generate superior performance for shareholders.
“We expect that the combination with NAVF will also result in enhanced liquidity and a stronger rating, with fees set at competitive levels.”
The proposal is expected to complete in the third quarter of this year.
This story first appeared on our sister publication, Portfolio Adviser.