Opinion  

An investment rose by any other name

Richard Aston

Richard Aston

In an unprecedented period of low-to-no growth, equity income has been the sanctuary of many an investor portfolio. Even then, good returns come down, largely, to good stockpicking. 

With annual corporate cashflow at record levels, at an aggregate level Japanese equities have delivered the fastest dividend growth within the major economic regions in the past six years.

This is despite the fact that some of the large index constituents, such as Sony, Panasonic, Toshiba and Hitachi, have actually cut their dividends, in some cases to zero.  

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We identify exciting investment opportunities as the consensus behaviour in Japan evolves to a consistent trend more easily comparable to those historically associated with Western developed markets, looking for companies that complement expansive business strategies with the need of their shareholders to be rewarded with appropriate annual distributions.

The opportunities are many and reflect the fact that Japan has a large number of internationally renowned industry leaders, as well as prominent participants in the growth of other parts of Asia and dominant domestic players across a wide range of industries.

These opportunities are not confined to large-caps alone, with attractive candidates identified in the mid- and small-cap areas where management incentives are often more closely aligned with those of minority shareholders.

Financial sectors are, however, worthy of discussion given their prominence in the weakest performance grouping over 10 years but relatively high weighting in the CC Japan Growth & Income Trust portfolio.

Over the past few years, the leading companies in the banking and insurance sectors have been at the forefront of the improvements in shareholder return and, consequently, offer a very different outlook. This is no more evident than in the large buybacks announced recently by Mitsubishi UFJ Financial Group (Y100bn) and Tokio Marine Holdings (Y100bn).

Demographics have long been cited as unfavourable in Japan, though the government has been encouraging companies to adopt counter measures to adapt to the changes under Prime Minister Abe’s watchful eye. Therein lie the investment opportunities.

In the case of Japan, the ‘labour crunch’, as it is often called, has presented some compelling investment opportunities particularly in the outsourced labour market.

Mr Abe has also made increasing female participation in the Japanese workforce an essential element of his efforts to revive the Japanese economy. 

The combination of a changing attitude to shareholders by larger firms, started some time ago but hastened by Abenomics, and a growing entrepreneurial Japan places the country firmly in the frame for those seeking income from equities over the longer term.

Richard Aston is manager of the CC Japan Growth & Income Trust