Yahoo Finance Janus Henderson Bets on Still-Cheap Japanese Financial Stocks
(Bloomberg) -- Japanese financial firms still look undervalued despite their steady gains in the past year, with rising dividend payments making them a good investment, according to a Janus Henderson Investors portfolio manager.
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Junichi Inoue, who manages the £43.07 million ($54.8 million) Janus Henderson Japan Opportunities Fund, said he’s gradually shifted from global companies to Japanese financial firms, in which he’s increased holdings to about 18.05% of the total. Inoue is investing in companies such as Sumitomo Mitsui Financial Group Inc. and Tokio Marine Holdings Inc. His fund has returned 15% this year, surpassing the MSCI Japan Index’s 8.7% advance in UK pound terms, Bloomberg-compiled data show.
Data on dividends highlight why investors like Inoue are bullish on financial firms in Japan. Dividends from the sector are expected to climb 9.7% in the next 12 months, the third best among 11 major sectors in the Topix index, according to data compiled by Bloomberg. Topix indexes for banks and insurers have also outperformed the broader Tokyo market.
“In the past I tended to to own a lot more international companies than domestic ones—obviously the domestic industry in terms of growth was lagging globally as well,” said Inoue, whose fund has beaten 89% of its peers in the past year. “But what has really changed was I get a lot of good stories out of domestic companies, especially financial institutions. So I have a really punchy bet on financials.”
The nation’s financial firms have benefited from the Bank of Japan’s move away from super-easy monetary policy, as higher borrowing costs help increase lending margins and investment returns. Japanese banks have followed the push by the government to improve shareholder gains, announcing stock buyback programs and unwinding of their cross-shareholdings with other companies, while also pushing up dividends.
Inoue said his move into financial shares has taken up the past two years, during which time dividends from target companies have risen. Sumitomo Mitsui has increased its dividends to ¥270 from ¥190 in four years. Similarly, insurer Dai-ichi Life Holdings Inc. has upped its dividends to ¥113 from ¥62 in the same period.
Financial firms also have lower valuations than the overall market, with the price-to-book ratio for the Topix banks index trading at 0.82 time while the Topix index’s ratio is trading at 1.46 times.
Share buybacks may make sense for financial stocks, but it’s not always a good thing for all sectors, Inoue said. Companies that have announced repurchases along with their latest results saw share prices outperform the Topix by less than 1 percentage point over the next five days, according to data compiled by Bloomberg.
“The financial sector is completely different because consolidation has happened in the past and they made very good money and retained it, so there’s a capital surplus,” he said.
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