Japanese Equities Q1 investment update

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<p><strong>Your capital is at risk. Past performance is not a guide to future returns. The following update is based on a representative portfolio. As such, stock examples may not be held in every client portfolio, and performance may differ.</strong></p> <p><strong>Alison Henry:</strong> For many years, investing in Japan resembled a drought. Declining demographics, deflation, and a low-risk appetite created an environment where stock pickers had to look for businesses that could thrive on their own steam. Investors gravitated towards digital platforms, software-like models, consumer franchises, and other businesses able to compound largely on their own. That was the environment in which many of our holdings prospered. It favoured businesses with structural earnings growth and the ability to create demand rather than merely receive it. It was a fertile backdrop for active investing.</p> <p>Then the weather changed. Inflation, nominal growth and currency weakness swept across Japan like a flood and allowed more economically sensitive businesses to thrive. Operating leverage and currency came to dominate, resulting in a broad macro rally over the last five years or so.</p> <p>Exposure rather than selection did much of the work and our portfolio underperformed as a result. In recent months, market leadership has broadened, but not yet in the way we had hoped. The strongest winners have been companies closest to the pressure points in the economy. So the cable makers, shipping companies, and trading houses, the first order beneficiaries of the wetlands after the flood. The Iran war has pushed investors toward immediate beneficiaries of the energy and logistics strain, and the SaaS sell-off showed the other side of the same behaviour. When investors worry about AI disruption, they sell the names nearest to the code.</p> <p>This helps to explain our relative underperformance over the quarter. We had less exposure to the boats and the bridges, if you like, and more to businesses whose payoff lies further downstream. Several of our weaker holdings, so that would be GMO Internet, SoftBank, SPI Holdings and Recruit. They’re focused on what customers do once bottlenecks become too costly to ignore, rather than monetising the bottleneck itself.</p> <p>So this was a quarter in which the market preferred immediacy over duration. The key question is where do returns pool next? With the bottleneck owners, or with businesses helping customers build long-term solutions. So once the water rises, companies and consumers do not keep paying the crossing toll forever. They adapt and build drainage and canals. And the same applies in markets. Once labour becomes scarcer, businesses invest in automation. Once capital costs rise, they seek lower friction intermediation. And once digital infrastructure becomes strategic, businesses spend on compute, security and workflow. So Recruit, the owner of Indeed and Glassdoor, is a good example.</p> <p>It sold off during the quarter on SaaS contagion fears, despite being critical in helping to address one of Japan’s biggest constraints, labour. Scarcity will first reward companies exposed to tighter conditions, but the more enduring opportunity will reward businesses that help the labour market function better. Recruit does exactly that by improving matching, hiring efficiency and throughput. A similar logic applies to SBI holdings and SBI Shinsei within finance. As capital is priced more carefully, the opportunity shifts towards better intermediation SBI is enabling digital distribution, lower friction intermediation, and a more efficient banking model, which is normalising the cost of capital. GMO Internet sits in a related position within digital infrastructure. As compute security and connectivity become more strategic, its role as owner and operator of Japan’s internet infrastructure is to help customers adapt. And lastly, Softbank. It’s perhaps the least neat fit, but the broad logic still holds. Through its 90 percent holding an arm and 13 percent holding an open AI, it sits closer to enabling the next layer of AI infrastructure than to owning today’s bottleneck.</p> <p>So to conclude, we don’t think we’re positioned against the market’s direction of travel. We believe we’re positioned a step further along it. And that is made more compelling by today’s valuation. The portfolios now trade at a discount to the market, despite enjoying higher sales and earnings growth. We are being asked to pay less for businesses that we believe are better placed for what comes next.</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <h3 class="TABLEHEADER1212pt">Japanese Equities</h3> <p><strong>Annual past performance to 31 March each year (%)</strong></p> <table border="1" style="border-collapse: collapse; width: 100%; border-width: 0px; height: 74.6668px;"> <tbody> <tr style="height: 18.6667px;"> <td style="border-width: 1px 1px 2px; border-style: solid; border-color: rgb(204, 204, 204) rgb(204, 204, 204) rgb(0, 0, 0); border-image: initial; padding: 10px; height: 18.6667px;">&nbsp;</td> <td style="border-width: 1px 1px 2px; border-style: solid; border-color: rgb(204, 204, 204) rgb(204, 204, 204) rgb(0, 0, 0); border-image: initial; padding: 10px; height: 18.6667px; text-align: right;"><strong>2022</strong></td> <td style="border-width: 1px 1px 2px; border-style: solid; border-color: rgb(204, 204, 204) rgb(204, 204, 204) rgb(0, 0, 0); border-image: initial; padding: 10px; height: 18.6667px; text-align: right;"><strong>2023</strong></td> <td style="border-width: 1px 1px 2px; border-style: solid; border-color: rgb(204, 204, 204) rgb(204, 204, 204) rgb(0, 0, 0); border-image: initial; padding: 10px; height: 18.6667px; text-align: right;"><strong>2024</strong></td> <td style="border-width: 1px 1px 2px; border-style: solid; border-color: rgb(204, 204, 204) rgb(204, 204, 204) rgb(0, 0, 0); border-image: initial; padding: 10px; height: 18.6667px; text-align: right;"><strong>2025</strong></td> <td style="border-width: 1px 1px 2px; border-style: solid; border-color: rgb(204, 204, 204) rgb(204, 204, 204) rgb(0, 0, 0); border-image: initial; padding: 10px; height: 18.6667px; text-align: right;"><strong>2026</strong></td> </tr> <tr style="height: 18.6667px;"> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px;">Japanese Equities All Cap Composite (gross)</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; text-align: right;">-11.6</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; text-align: right;">-10.8</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; text-align: right;">11.6</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; text-align: right;">-0.1</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; text-align: right;">11.3</td> </tr> <tr style="height: 18.6667px;"> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px;">Japanese Equities All Cap Composite (net)</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; text-align: right;">-12.2</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; text-align: right;">-11.3</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; text-align: right;">11.0</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; text-align: right;">-0.7</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; text-align: right;">10.7</td> </tr> <tr> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px;">Japanese Equities Growth Composite (gross)</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; text-align: right;">-17.0</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; text-align: right;">-12.2</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; text-align: right;">12.2</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; text-align: right;">-5.1</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; text-align: right;">13.6</td> </tr> <tr> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px;">Japanese Equities Growth Composite (net)</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; text-align: right;">-17.5</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; text-align: right;">-12.7</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; text-align: right;">11.6</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; text-align: right;">-5.6</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; text-align: right;">12.9</td> </tr> <tr style="height: 18.6667px;"> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px;">TOPIX Index</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; text-align: right;">-7.2</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; text-align: right;">-3.5</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; text-align: right;">24.3</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; text-align: right;">-0.4</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; text-align: right;">26.6</td> </tr> </tbody> </table> <p>&nbsp;</p> <p><strong>Annualised returns to 31 March 2026 (%)</strong></p> <table border="1" style="border-collapse: collapse; width: 100%; border-width: 0px; height: 93.0001px;"> <tbody> <tr style="height: 37px;"> <td style="border-width: 1px 1px 2px; border-style: solid; border-color: rgb(204, 204, 204) rgb(204, 204, 204) rgb(0, 0, 0); border-image: initial; padding: 10px; height: 37px; width: 61.3043%;">&nbsp;</td> <td style="border-width: 1px 1px 2px; border-style: solid; border-color: rgb(204, 204, 204) rgb(204, 204, 204) rgb(0, 0, 0); border-image: initial; padding: 10px; height: 37px; width: 13.0435%; text-align: right;"><strong>1 year</strong></td> <td style="border-width: 1px 1px 2px; border-style: solid; border-color: rgb(204, 204, 204) rgb(204, 204, 204) rgb(0, 0, 0); border-image: initial; padding: 10px; height: 37px; width: 12.6522%; text-align: right;"><strong>5 years</strong></td> <td style="border-width: 1px 1px 2px; border-style: solid; border-color: rgb(204, 204, 204) rgb(204, 204, 204) rgb(0, 0, 0); border-image: initial; padding: 10px; height: 37px; width: 12.7826%; text-align: right;"><strong>10 years</strong></td> </tr> <tr style="height: 18.6667px;"> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; width: 61.3043%;">Japanese Equities All Cap Composite (gross)</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; width: 13.0435%; text-align: right;">11.3</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; width: 12.6522%; text-align: right;">-0.4</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; width: 12.7826%; text-align: right;">7.6</td> </tr> <tr style="height: 18.6667px;"> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; width: 61.3043%;">Japanese Equities All Cap Composite (net)</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; width: 13.0435%; text-align: right;">10.7</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; width: 12.6522%; text-align: right;">-1.0</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; width: 12.7826%; text-align: right;">7.0</td> </tr> <tr> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; width: 61.3043%;">Japanese Equities Growth Composite (gross)</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; width: 13.0435%; text-align: right;">13.6</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; width: 12.6522%; text-align: right;">-2.5</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; width: 12.7826%; text-align: right;">6.5</td> </tr> <tr> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; width: 61.3043%;">Japanese Equities Growth Composite (net)</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; width: 13.0435%; text-align: right;">12.9</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; width: 12.6522%; text-align: right;">-3.1</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; width: 12.7826%; text-align: right;">5.8</td> </tr> <tr style="height: 18.6667px;"> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; width: 61.3043%;">TOPIX Index</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; width: 13.0435%; text-align: right;">26.6</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; width: 12.6522%; text-align: right;">7.0</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6667px; width: 12.7826%; text-align: right;">8.8</td> </tr> </tbody> </table> <p><span style="font-size: 7.0pt; font-family: 'Helvetica Now Text',sans-serif; mso-fareast-font-family: 'Times New Roman'; mso-bidi-font-family: Arial; mso-ansi-language: EN-GB; mso-fareast-language: JA; mso-bidi-language: AR-SA;">Source: Revolution, Japan Exchange Group. US dollars. Net returns have been calculated by reducing the gross return by the highest annual management fee for the composite. 1 year figures are not annualised.</span><span style="font-size: 7.0pt; font-family: 'Helvetica Now Text',sans-serif; mso-fareast-font-family: 'Times New Roman'; mso-bidi-font-family: Arial; mso-ansi-language: EN-GB; mso-fareast-language: JA; mso-bidi-language: AR-SA;"></span></p> <p><strong>Past performance is not a guide to future returns.</strong></p> <p><span style="font-size: 7.0pt; font-family: 'Helvetica Now Text',sans-serif; mso-fareast-font-family: 'Times New Roman'; mso-bidi-font-family: Arial; mso-ansi-language: EN-GB; mso-fareast-language: JA; mso-bidi-language: AR-SA;">Legal notice: The TOPIX Index Value and the TOPIX Marks are subject to the proprietary rights owned by Tokyo Stock Exchange, Inc. and Tokyo Stock Exchange, Inc. owns all rights and know-how relating to the TOPIX such as calculation, publication and use of the TOPIX Index Value and relating to the TOPIX Marks. No Product is in any way sponsored, endorsed or promoted by Tokyo Stock Exchange, Inc.</span></p> <p>&nbsp;</p> <h3>Risk factors&nbsp;</h3> <p>This communication was produced and approved in April 2026 and has not been updated subsequently. It represents views held at the time and may not reflect current thinking.</p> <p>The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.</p> <p>This communication contains information on investments which does not constitute independent research. 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