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Promoted by Janus Henderson

Bankers’ Alex Crooke on Japan: Value released from corporate change

The Bankers Investment Trust contains a broad mix of global equity stocks.

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.

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Jeremy Corbyn supporters should stop excusing Labour’s anti-immigration drift

The Labour leader is a passionate defender of migrants’ rights – Brexit shouldn’t distract the new left movement from that.

Something strange is happening on the British left – a kind of deliberate collective amnesia. During the EU referendum, the overwhelming majority of the left backed Remain.

Contrary to a common myth, both Jeremy Corbyn and the movement behind him put their weight into a campaign that argued forcefully for internationalism, migrants’ rights and regulatory protections.

And yet now, as Labour’s policy on Brexit hardens, swathes of the left appear to be embracing Lexit, and a set of arguments which they would have laughed off stage barely a year ago.

The example of free movement is glaring and obvious, but worth rehashing. When Labour went into the 2017 general election promising to end free movement with the EU, it did so with a wider election campaign whose tone was more pro-migrant than any before it.

Nonetheless, the policy itself, along with restricting migrants’ access to public funds, stood in a long tradition of Labour triangulating to the right on immigration for electorally calculated reasons. When Ed Miliband promised “tough controls on immigration”, the left rightly attacked him.  

The result of this contradiction is that those on the left who want to agree unequivocally with the leadership must find left-wing reasons for doing so. And so, activists who have spent years declaring their solidarity with migrants and calling for a borderless world can now be found contemplating ways for the biggest expansion of border controls in recent British history – which is what the end of free movement would mean – to seem progressive, or like an opportunity.

The idea that giving ground to migrant-bashing narratives or being harsher on Poles might make life easier for non-EU migrants was rightly dismissed by most left-wing activists during the referendum.

Now, some are going quiet or altering course.

On the Single Market, too, neo-Lexit is making a comeback. Having argued passionately in favour of membership, both the Labour leadership and a wider layer of its supporters now argue – to some extent or another – that only by leaving the Single Market could Labour implement a manifesto.

This is simply wrong: there is very little in Labour’s manifesto that does not have an already-existing precedent in continental Europe. In fact, the levers of the EU are a key tool for clamping down on the power of big capital.

In recent speeches, Corbyn has spoken about the Posted Workers’ Directive – but this accounts for about 0.17 per cent of the workforce, and is about to be radically reformed by the European Parliament.

The dangers of this position are serious. If Labour’s leadership takes the path of least resistance on immigration policy and international integration, and its support base rationalises these compromises uncritically, then the logic of the Brexit vote – its borders, its affirmation of anti-migrant narratives, its rising nationalist sentiment – will be mainlined into Labour Party policy.

Socialism in One Country and a return to the nation state cannot work for the left, but they are being championed by the neo-Lexiteers. In one widely shared blogpost on Novara Media, one commentator even goes as far as alluding to Britain’s Road to Socialism – the official programme of the orthodox Communist Party.

The muted and supportive reaction of Labour’s left to the leadership’s compromises on migration and Brexit owes much to the inept positioning of the Labour right. Centrists may gain personal profile and factional capital when the weaponising the issue, but the consequences have been dire.

Around 80 per cent of Labour members still want a second referendum, and making himself the “stop Brexit” candidate could in a parallel universe have been Owen Smith’s path to victory in the second leadership election.

But it meant that in the summer of 2016, when the mass base of Corbynism hardened its factional resolve, it did so under siege not just from rebelling MPs, but from the “Remoaners” as well.

At every juncture, the strategy of the centrist Labour and media establishment has made Brexit more likely. Every time a veteran of the New Labour era – many of whom have appalling records on, for instance, migrants’ rights – tells Labour members to fight Brexit, party members run a mile.

If Tony Blair’s messiah complex was accurate, he would have saved us all a long time ago – by shutting up and going away. The atmosphere of subterfuge and siege from MPs and the liberal press has, by necessity, created a culture of loyalty and intellectual conformity on the left.

But with its position in the party unassailable, and a radical Labour government within touching distance of Downing Street, the last thing the Labour leadership now needs is a wave of Corbynite loyalty-hipsters hailing its every word.

As the history of every attempt to form a radical government shows, what we desperately need is a movement with its own internal democratic life, and an activist army that can push its leaders as well as deliver leaflets for them.

Lexit is no more possible now than it was during the EU referendum, and the support base of the Labour left and the wider party is overwhelmingly in favour of free movement and EU membership.

Jeremy Corbyn, John McDonnell and Diane Abbott are passionate, principled advocates for migrants’ rights and internationalism. By showing leadership, Labour can once again change what is electorally possible.