Show Hide image Promoted by Janus Henderson Business 6 July 2017 Bankers’ Alex Crooke on Japan: Value released from corporate change The Bankers Investment Trust contains a broad mix of global equity stocks. Sign up to the Staggers Morning Call email * Print HTML We aim for a blend of small, medium, and large-sized firms, seeking those with strong and rising dividends as well as those with the potential for strong growth of earnings. In addition we take a view on asset allocation, apportioning our investor’s cash into different stock markets through the portfolio’s ‘sleeves’, where our regional fund managers pick stocks according to where they best find value and opportunity. This means we can invest in every major stock market across the globe, and at certain times we will be more bullish on one region’s prospects over another’s. Three years is often a good yard-stick for performance. Looking over the varying markets that the Bankers portfolio invests in – the UK, North America, Japan, Asia Pacific, Europe (ex UK), and Latin America – the underlying Japanese market has been a strong performer globally, coming-in second only in Sterling terms to the US, which contains a strongly self-sustaining domestic economy. Within the Banker’s Japanese ‘sleeve’ stock selection has further added to performance, with picks coming from our Tokyo based Japanese fund manager, Junichi Inoue. Plenty of investors focus, more bearishly, on ageing populations, poor profitability and disinflation, and have tended to underplay the region. For Bankers the allocation to this sleeve is overweight to both the index and significantly our peers. Our investment thesis is centred on the belief that corporates are undergoing a variety of significant positive changes, and that this is enabling them to release value from decades of poor capital allocation and governance. Extracting value The first change lies in the shifting corporate mentality towards generating shareholder value. In the past Japanese firms have tended to hoard cash on their balance sheets, leading to either under-investment in capital expenditure and falling global market share, or over-diversification into competing firms and maligned business areas, creating highly fragmented industries where businesses resist mergers or become buried in a quagmire of non-core assets. Cheap labour has compounded poor investment decisions - access to large pools of cheap available labour has reduced returns by encouraging management to needlessly add capacity. The broader effect has been to produce low rates of return on equity (ROE), reducing profits and discouraging investors to the detriment of share price returns. We believe this issue of shareholder value is now being seriously addressed. Since the country’s Prime Minister, Shinzo Abe, unleashed his “three arrows” of economic reforms - often referred to as ‘Abenomics’ - Japanese firms have started to adopt much more western corporate thinking. Cross-holdings are being unwound and non-core assets sold; boards are choosing to hand back cash where appropriate, as can be seen in rising dividends, pay-out ratios and share buy-backs; and firms are now taking a much more cautious approach to labour investment amid increasing shortages. A long needed shake-up The second area is corporate governance. Many firms have been guilty of nepotism and a lacking in meritocracy in the past, where age and tenure has become the primary driver of salary and progression. Mr Abe has taken aim at these areas as well, attempting to introduce greater boardroom checks and balances. In 2014 Japan’s financial regulator introduced the ‘stewardship code’ which directed asset managers and investors as to how they should engage with firms more responsibly; in 2015 the government introduced the corporate governance code, encouraging firms to have at least two independent directors on their boards. The chart below demonstrates growing board independence. The attempts of Mr Abe and corporates alike are very encouraging, and if firms continue to focus on the value they can create for shareholders we expect increasing investor participation in Japanese stocks. Indeed Japan’s stock market is attempting to revitalise interest in its companies for these reasons, creating an index of 400 leading firms with high investor appeal by departing from the traditions of simple market-cap weightings to include measures of corporate governance and profitability. In the Bankers portfolio our continuing focus will be on stock selection, seeking quality companies with strong drivers in place for future earnings growth. And with valuations appearing inexpensive both relative to history and wider markets we expect good stock selection to add to performance for our investors for some time to come. Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. Issued in the UK by Henderson Investment Funds Limited (reg. no. 2678531), incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE, is authorised and regulated by the Financial Conduct Authority to provide investment products and services. › Unless living standards improve, Theresa May's Cameron tribute act will continue to fall flat
Show Hide image The Staggers 2 August 2017 Donald Trump has shown why a US trade deal would be so difficult for Britain The US president struggles to sustain interest in trade, but when he does, he's demanding access to agriculture and the NHS. Sign up to the Staggers Morning Call email * Print HTML As before, Donald Trump has promised "a major trade deal" with the UK. But it's the rest of the US president's interview with the Wall Street Journal (the full transcript of which was leaked to Politico) that should trouble the Brexiteers. Though Trump struggles to progress beyond platitudes, he declares that he wants an "all-in" trade deal, including agriculture and services. He complains that the "protectionist" EU hinders US farmers, seemingly unaware that any deal with Britain faces the same obstacles. The prospect of chlorine-washed chicken entering the UK has already split the cabinet (with Environment Secretary Michael Gove vowing to block it) and hormone-injected beef and acid-washed pork would likely fare no better. Were Britain to adopt US standards, it would undermine continued trade with the EU: there is no cost-free option. That furore is minor, however, compared to the rows that would result if the US demands protections for its multinationals and access to the NHS. Britain's inexperience of trade negotiations (the preserve of Europe for 44 years) and its large trade surplus with the US mean it starts from a position of unambiguous weakness. Even if Trump is determined to strike a deal, he faces political constraints of his own. New trade deals require Congressional approval and legislators must be given extensive notice at each stage of the process. Successful trade agreements require patience, attention to detail and persistence - qualities in which Trump is notably lacking. Asked whether he can provide more details of a future deal, the US president initially replies "no" before a bizarre segue into the decline of "Britain" ("You don’t hear the word Britain anymore. It’s very interesting. It’s like, nope.") and Scottish golf ("One little thing, what would they do with the British Open if they ever got out?") During the interview, the Wall Street Journal remarks: "The one thing is there’s a ticking clock with Brexit". But where trade is concerned, the problem is less a shortage of time than an excess. Until the UK leaves the EU, it cannot commence formal negotiations with the US, a restriction that would likely persist during a two or three-year transition period. By that time, Trump may well have left the White House (or simply lost interest), another factor that gives his words limited worth. As Justice Secretary David Lidington has stated, a deal with the US would not compensate for the damage that would result from a hard Brexit (and comes with costs of its own). In trade, geography matters (the EU accounts for 44 per cent of British exports). The UK's economic future depends far more on the agreement it reaches with Europe than that it may never strike with the US. George Eaton is political editor of the New Statesman. More Related articles EU passport control delays are a preview of Britain's Brexit fate The night a man sidled up to me in the dark and asked: “Do you want a pizza?” It’s not up to politicians to tell the public they don’t need encryption Subscription offer 12 issues for £12 + FREE book LEARN MORE Close This week’s magazine