Revolutions and boardrooms don’t often go hand-in-hand. However, in Japan over the last ten years a quiet corporate revolution has been taking place – creating an investment opportunity with it.

A decade ago, Japanese company culture was infamous for a lack of transparency and for inefficient corporate practices. This culture meant that it was hard for outside investors to invest into Japan.

In 2015, the first Japanese Corporate Governance Code was created, which required companies to commit to higher standards. Since then, that Code has been revised twice, adding factors like sustainability, and more independent boards. The Tokyo Stock Exchange (TSE) has also gradually introduced tougher rules for businesses with shares listed on it.

Encouraged by these reforms, companies have been acting in more “shareholder-friendly” ways. Many more pay out dividends than before and they are now required to take input from owners of their shares.

This behaviour has encouraged investors, like The Bankers Investment Trust, to look more closely at Japan. We believe that many investors are yet to fully understand the pace of change in Japan – and its impact on global markets.

The trust benefits from the expertise of Janus Henderson Investors’ Tokyo-based Japan equities team. Led by Junichi Inoue, the team helps us invest in a focused list of 25-30 Japanese shares. These shares contributed to the trust’s performance in 2023, with the sleeve adding returns of 13.9%.

Examples in our portfolio include world famous businesses like Toyota Motor, Hitachi and Asahi. Regular meetings with the management at each company have helped Junichi and his team learn what is going on “beneath the bonnet”:

• Toyota Motor was criticised among investors for what it calls its “multi pathway” approach to vehicle types. The market has favoured companies focusing solely on electric vehicles. Instead, Toyota has produced a mix of hybrid, hydrogen and 100% electric vehicles, while still also making traditional combustion engines. This approach means it has solutions for most car-buying markets. In turn, this has meant its market share has stayed strong in most regions, a fact that investors are beginning to appreciate. We have owned Toyota for almost a decade.
• Asahi, the drinks company, is a clear example of how Japanese businesses are going global. Over the last ten years, the company has increased its presence in outside Japan. This means it doesn’t depend on Japanese customers for its success. It has also kept up with drinks trends, launching a 0.0% version of its best-seller, Asahi Super Dry.
• Hitachi, an industrial group, has completely transformed how it does business. It previously had a lot of listed subsidiaries in various markets, which it couldn’t really control. It now only owns businesses that it has 100% control over and has sold businesses in markets where it didn’t have significant market share, such as motorbike manufacturing. Combined, this means that the business is spending money more sensibly and has full control over its revenue. It is also paying increasing dividends and buying back shares, where relevant.

To find out more about The Bankers Investment Trust, click here

Discrete performance

Source: Morningstar, as at 31/12/2023

 
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