M&G Japan Smaller Companies GBP I Acc
Why is this fund on our radar?
The M&G Japan Smaller Companies Fund seeks to outperform the Russell/Nomura Mid-Small Cap Index over rolling five-year periods, investing predominantly in Japanese small- and mid-cap equities. Since Carl Vine became lead manager in 2019, the fund has outperformed its benchmark, supported by a consistent process and deep regional resources. Carl, alongside Deputy Manager Sabrina Gleeson and a 14-strong Asia Pacific research team, leverages broader Asian expertise to identify cross-market trends, supply-chain dynamics and competitive disruptors that may be overlooked by investors. This approach has helped uncover not only high-quality Japanese businesses but also those poised to benefit from broader Asian growth themes such as digital transformation, electrification and healthcare innovation.
Carl employs a valuation-aware approach that blends quality and value characteristics, focussing on financially resilient companies with durable competitive advantages, stable business models and a margin of safety. Whilst theoretically style-neutral, the strategy’s emphasis on exploiting controversy, market scepticism, or complexity to uncover the mispricing of quality businesses, or trading below intrinsic value, naturally tilts it toward a strict valuation discipline.
What earned the fund a place on our list is the consistency of its approach and the strength of its stock picking. Over time, the managers have added meaningful value by getting more of their investment ideas right than wrong which has helped deliver performance ahead of its comparators. And whilst smaller companies can be more volatile, the fund has tended to deliver its returns without taking on excessive risk on the downside, a reassuring profile for investors who want active exposure to a less-researched and potentially rewarding area of the Japanese market.
Skip to Our VerdictPerformance
Since Carl Vine became lead manager in 2019, M&G Japan Smaller Companies has delivered exceptional returns. To the end of October 2025, the fund has returned 98.4%, outperforming its benchmark, the Russell/Nomura Mid-Small Cap Index, which returned 45.7%, and the IA Japan sector average of 54.5%. This strong performance reflects the team’s quality-focussed, valuation-conscious and pragmatic approach, drawing on local, on-the-ground insights and broader Asian expertise to exploit inefficiencies in Japan’s smaller-company market. Over this period, stock selection has been the primary driver of returns.
performance under current manager
Past performance is not a reliable indicator of future results
Given the strategy, however, the fund has experienced periods of both relative out- and underperformance. A key factor is the performance of small- and mid-cap stocks. The fund is materially overweight in small caps, so when this segment performs strongly, the portfolio tends to benefit. Whilst theoretically style-neutral, the fund’s focus on quality and valuation discipline means it also performs well when quality factors or value-oriented tailwinds support the market. This is particularly evident in 2021 and 2022, when strong stock selection, combined with small-cap and value outperformance, drove exceptional relative returns.
Calendar year returns
Past performance is not a reliable indicator of future results
We would expect the fund, however, to lag when the reverse occurs. For example, in 2020 and 2024, small caps trailed mid and large caps, weighed down by macro pressures such as COVID, trade tensions and frequent Japanese political changes. Stock-specific factors also matter due to the fund’s high-conviction, high active share approach: successful stock selection can drive meaningful outperformance, but individual missteps can impact relative returns. That said, the fund’s consistent alpha generation and strong batting average suggest that so far under Carl’s tenure, more stock calls have been correct than not, supporting the ability to add value over the market over time.
Portfolio
The process is valuation-sensitive, bottom-up and research-led, targeting companies where complexity, controversy or limited coverage has created a meaningful gap between price and intrinsic value. These characteristics are most pronounced further down the market-cap spectrum, where inefficiencies from lighter analyst coverage and return dispersion, can offer fertile ground for active stock selection. The managers deliberately focus on Japan’s smaller, often overlooked companies, where their proprietary research, on-the-ground access and broader Asian expertise provide a genuine stock-picking edge. This helps them to identify resilient businesses mispriced or overlooked by the broader market. Structural shifts are also making this segment more investable. The number of listed Japanese companies is declining, as weaker firms face greater scrutiny, and upcoming Tokyo Stock Exchange reforms in 2026 will enforce stricter liquidity and governance standards, accelerating the divergence between stronger companies and weaker peers.
As of October 2025, small- and mid-cap names accounted for 13% and 32% of the fund, versus 15% and 38% in the index, reflecting meaningful exposure to this opportunity set whilst maintaining valuation discipline, avoiding the deep-value or low-quality areas of the market.
market cap allocation
Once a company enters the fund’s core universe, its fundamentals, industry dynamics and competitive positioning are monitored, with regular engagement with management to validate insights and uncover risks. The team prioritise businesses with stable models, limited competition, resilient fundamentals and a clear margin of safety, blending quality and value characteristics to focus on upside/downside asymmetry. This approach naturally favours sectors where they see the most pronounced mispricing, reflected in overweights to sectors like Industrials and Technology, where resilient fundamentals and attractive valuations intersect with long-term growth potential. Existing positions include semiconductor manufacturer Rohm, which Carl believes is undergoing an underappreciated turnaround, with stronger earnings, a materially improved balance sheet and low valuations creating meaningful opportunity.
Sector allocation
Our Verdict
Japan’s smaller-company market is generally seen as inefficient, reflecting limited analyst coverage, operational complexity and varying reporting standards. Yet this inefficiency also creates a unique combination of growth potential and structural reform, making it fertile ground for active investors with local insight and the resources to navigate it. Japan’s broader market is also increasingly being shaped by corporate reforms, notably improving governance and disciplined capital allocation, dynamics now beginning to influence smaller companies as well.
Against this backdrop, M&G Japan Smaller Companies stands out. Carl Vine and his team combine a quality-led, valuation-conscious approach to stock selection, supported by on-the-ground access in Japan and broader Asian expertise which helps them identify resilient businesses trading below intrinsic value. Their focus on companies or sectors where mispricing is most pronounced has helped deliver consistently returns in excess of its benchmark, demonstrating how disciplined active management can unlock opportunities in parts of the market that are overlooked or under-researched.
For investors looking to diversify into Japan, this fund provides access to a hard-to-reach segment of the market, offering exposure to innovative, high-quality businesses trading at attractive valuations. Whilst this approach comes with its own risks, smaller companies can be more volatile, the potential for meaningful capital growth and portfolio diversification is significant.
Key Risks
- Quality-led and value-conscious approach may lag during speculative or growth-led market rallies
- Whilst offering a greater return potential, exposure towards small caps can increase risk and economic sensitivity
- Concentrated, high-conviction portfolio can add risk
