The Fidelity Japan Trust has seen its net asset value per share fall 15.4 per cent in 2018 as the escalation of global risk factors caused a downturn in investor sentiment.
According to the trust’s annual results for the year ended December 31, 2018, the share price also suffered, falling 16.2 per cent and underperforming the benchmark index, which returned -8.3 per cent.
Chairman of the trust David Robins said for the majority of the year performance had been good, but the trust suffered in the final three months of the year.
He added: "Since the end of the reporting year and up to 28 February 2019, performance has been positive.
"The Nav per share return was 9.1 per cent, the share price return was 8.3 per cent and the reference index return was 1.6 per cent.
"Over the same two months, the company’s Nav per share return ranked number one amongst the peer group."
Manager of the Fidelity Japan Trust, Nicholas Price, said holdings in musical instrument firm Yamaha Corporation, online printers Raksul, and medical equipment manufacturer Intecc were strong contributors during the year.
However, he added individual holdings including Sysmex, UT Group, and Yume no Machi Souzou linkai weighed down on performance.
Mr Price said: "Despite a slowdown in external demand, economic activity in Japan is likely to be sustained by domestic demand, with inflation remaining subdued and the Bank of Japan maintaining its existing monetary policy. Under such conditions, I would not expect the portfolio to face significant headwinds.
"The key risk factors that could derail this scenario are a significant deterioration in economic conditions among Japan’s major trading partners, a further escalation of trade frictions between the US and China, and sustained yen strength, which tends to impact the market negatively."
He added: "Having said that, the portfolio is neutral in terms of currency exposure versus the reference index and tends to have a higher weighting towards domestic oriented companies in the mid and small cap space.
"Indeed, 70 per cent of the portfolio’s underlying revenue streams are generated within Japan."
Gearing, or debt levels, in the portfolio has risen from 15.2 per cent at the end of December 2018, to 16.1 per cent at the end of February 2019.