Alpha-Centric ESG Research

Kyle Rudden

Two days ago the U.K. Financial Reporting Council announced 125 successful signatories (aka "not greenwashers") to the revised U.K. Stewardship Code. Signatories are integrating stewardship and ESG (Environmental, Social, Governance) factors into investment decisions, to high standards.Whilst this is ostensibly limited to U.K. pension assets, ramifications are more far-reaching than it might at first appear (one indication is the number of North American and Asia Pacific signatories, in addition to the expected European names). More specifically, the broad relevance is because it:<ul>
<li>Affects firms doing business with U.K. asset managers/owners not just the managers/owners.</li>
<li>Is a quasi-blueprint for similar anti-greenwashing initiatives taking root in the U.S. and Asia.</li>
<li>Greenwashing is having an increasing impact on stocks prices (e.g., DWS Group last month).</li>
</ul>This is one battle in an emerging global war on greenwashing. The U.S. SEC has its own agenda to fight greenwashing and Asia isn't far behind (e.g., regulators in Japan stepping up scrutiny). There is more to come, and a lot to learn from this including who is (and is not) on the signatory list.

Two days ago the U.K. Financial Reporting Council announced 125 successful signatories (aka "not greenwashers") to the revised U.K. Stewardship Code. Signatories are integrating stewardship and ESG (Environmental, Social, Governance) factors into investment decisions, to high standards.Whilst this is ostensibly limited to U.K. pension assets, ramifications are more far-reaching than it might at first appear (one indication is the number of North American and Asia Pacific signatories, in addition to the expected European names). More specifically, the broad relevance is because it:
Affects firms doing business with U.K. asset managers/owners not just the managers/owners.
Is a quasi-blueprint for similar anti-greenwashing initiatives taking root in the U.S. and Asia.
Greenwashing is having an increasing impact on stocks prices (e.g., DWS Group last month).
This is one battle in an emerging global war on greenwashing. The U.S. SEC has its own agenda to fight greenwashing and Asia isn't far behind (e.g., regulators in Japan stepping up scrutiny). There is more to come, and a lot to learn from this including who is (and is not) on the signatory list.

The War on Greenwashing: UK Stewardship Code "Successful Signatories" Has Broader Implications

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/126/005/original/2020-04-02_06-04-47.png?1585775193" class="editor-image img-responsive" data-smartkarma-image-id="126005"></figure><div class="content-caption">Source • Japan Analytics</div>WEDNESDAY 1ST APRIL - The fallout in the financial Sectors continued on Wednesday with <a href="https://www.smartkarma.com/entities/dai-ichi-life-insurance" target="_blank" data-smartkarma-citation="entities:1109:1" rel="noopener">Dai Ichi Life Insurance (8750 JP)</a>halving its Ordinary Profit forecast and almost dipping into a net loss. The ¥209 billon worth of revisions relates to market value adjustments at Frontier Life and a decline in the share price of equity affiliate <a href="https://www.smartkarma.com/entities/janus-henderson-group-plc" target="_blank" data-smartkarma-citation="entities:26077:1" rel="noopener">Janus Henderson (JHG US)</a>. The dividend remains unchanged. Of the sixteen revisions and five results announced, our positive/negative scoring ratio was 4:10 for revisions and 2:3 for results.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/126/006/original/File%202020-04-01%2020%2015%2017.jpeg?1585775842" class="editor-image img-responsive" data-smartkarma-image-id="126006"></figure><div class="content-caption">Source • NHK</div>MASKING THE PROBLEM - Despite calls from medical experts and widespread rumours of stricter measures, the Abe Government has limited its response to extending school closures for another month and sending every household two washable cloth masks. Mask wearing and social distancing are suddenly now rife in political circles. Unfortunately, so are some xenophobic comments. In a similar vein, <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post (6178 JP)</a>  has stopped receiving airmail to be sent to 126 countries and any mail to a further 27.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/126/023/original/2020-04-02_07-13-19.png?1585779225" class="editor-image img-responsive" data-smartkarma-image-id="126023"></figure><div class="content-caption">Source • Japan Analytics</div>MARKETS - The BoJ's market intervention was only half that of the previous four, however, was still over 4% of TOPIX Value Traded.  We continue to recommend hitting their bid and waiting for the absolute value opportunity.

Source • Japan AnalyticsWEDNESDAY 1ST APRIL - The fallout in the financial Sectors continued on Wednesday with Dai Ichi Life Insurance (8750 JP)halving its Ordinary Profit forecast and almost dipping into a net loss. The ¥209 billon worth of revisions relates to market value adjustments at Frontier Life and a decline in the share price of equity affiliate Janus Henderson (JHG US). The dividend remains unchanged. Of the sixteen revisions and five results announced, our positive/negative scoring ratio was 4:10 for revisions and 2:3 for results.Source • NHKMASKING THE PROBLEM - Despite calls from medical experts and widespread rumours of stricter measures, the Abe Government has limited its response to extending school closures for another month and sending every household two washable cloth masks. Mask wearing and social distancing are suddenly now rife in political circles. Unfortunately, so are some xenophobic comments. In a similar vein, Japan Post (6178 JP)  has stopped receiving airmail to be sent to 126 countries and any mail to a further 27.Source • Japan AnalyticsMARKETS - The BoJ's market intervention was only half that of the previous four, however, was still over 4% of TOPIX Value Traded.  We continue to recommend hitting their bid and waiting for the absolute value opportunity.

🇯🇵 JAPAN • Revisions & Results Update 1st April - Masking the Problem

Macro and Australian equity strategist, Macro Strategy Advisors

Shane Lee

Macro and Australian equity strategist

Macro Strategy Advisors

<ul>
<li>
Stick to Growth. Growth has outperformed Value by 10%pts year-to-date and we expect its outperformance to continue for the remainder of the year, given the limited opportunities for a sustainable upswing in earnings growth and market pricing that is already stretched.  However, we acknowledge Growth’s outperformance is nearing a threshold that normally means it underperforms.  In this note, we put aside our preference for it as an investment style and list our preferred Value stocks.</li>
<li>
Cheap stocks with Mispriced longer-term Earnings. Our top picks are OZL, OSH, SIQ, TWE, AMC, ORA and these stocks are cheap based on the consensus outlook for EPS growth and the book value for equity.  Furthermore, growth in longer-term cashflow embedded in the share prices of these stocks seems too low. </li>
<li>
Value Traps Persist. There are many stocks within the ASX200 universe that look attractive because they are cheap.  However, any Value reward must be coupled with a turnaround in longer-term earnings growth Stocks such as JHG, GEM, JBH, GXL, MFG, BXB, BOQ, SKI, PPT, SWM and AMP appear cheap based on analysts’ EPS and growth of equity estimates.  However, the longer-term cashflow growth embedded into these share prices seem overly optimistic and this questions their Value proposition. Diversified Financials stocks MFG, PTM, IFL, JHG and CPU also seem to have very optimistic longer-term cashflow prospects factored into their share prices.</li>
<li>
Be wary of Junior Miners and Consumer Discretionary stocks. Junior miners such as ORE, SYR, SFR, FMG, WSA and RRL all appear cheap on their 12-mth earnings outlook, but the longer-term cashflow growth embedded into their share prices seems excessive.  The market also appears overly optimistic on the cashflow growth prospects of SUL and HVN.  </li>
<li>
Cheap Banks with a relatively high bar for cashflow growth. The share prices of the Major Banks seem to be supported by cashflow growth that exceeds the current pace of nominal GDP growth (5.6%) by around 2-3%pts.  These stocks look cheap, but we question whether cashflow growth can return to the longer-term average prior to the financial crisis.  The household sector has a large amount of debt and the population continues to age.  WBC is relatively cheap and is more attractive than the other Banks.  BEN is also attractive, but it has more realistic future cashflow prospects.</li>
</ul>



Stick to Growth. Growth has outperformed Value by 10%pts year-to-date and we expect its outperformance to continue for the remainder of the year, given the limited opportunities for a sustainable upswing in earnings growth and market pricing that is already stretched.  However, we acknowledge Growth’s outperformance is nearing a threshold that normally means it underperforms.  In this note, we put aside our preference for it as an investment style and list our preferred Value stocks.

Cheap stocks with Mispriced longer-term Earnings. Our top picks are OZL, OSH, SIQ, TWE, AMC, ORA and these stocks are cheap based on the consensus outlook for EPS growth and the book value for equity.  Furthermore, growth in longer-term cashflow embedded in the share prices of these stocks seems too low. 

Value Traps Persist. There are many stocks within the ASX200 universe that look attractive because they are cheap.  However, any Value reward must be coupled with a turnaround in longer-term earnings growth Stocks such as JHG, GEM, JBH, GXL, MFG, BXB, BOQ, SKI, PPT, SWM and AMP appear cheap based on analysts’ EPS and growth of equity estimates.  However, the longer-term cashflow growth embedded into these share prices seem overly optimistic and this questions their Value proposition. Diversified Financials stocks MFG, PTM, IFL, JHG and CPU also seem to have very optimistic longer-term cashflow prospects factored into their share prices.

Be wary of Junior Miners and Consumer Discretionary stocks. Junior miners such as ORE, SYR, SFR, FMG, WSA and RRL all appear cheap on their 12-mth earnings outlook, but the longer-term cashflow growth embedded into their share prices seems excessive.  The market also appears overly optimistic on the cashflow growth prospects of SUL and HVN.  

Cheap Banks with a relatively high bar for cashflow growth. The share prices of the Major Banks seem to be supported by cashflow growth that exceeds the current pace of nominal GDP growth (5.6%) by around 2-3%pts.  These stocks look cheap, but we question whether cashflow growth can return to the longer-term average prior to the financial crisis.  The household sector has a large amount of debt and the population continues to age.  WBC is relatively cheap and is more attractive than the other Banks.  BEN is also attractive, but it has more realistic future cashflow prospects.


Holding the Reigns on Aussie Value Stocks

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Event-Driven

On Oct. 3, 2016, Henderson Group entered into a merger agreement with Janus Group PLC. As part of that merger, a subsidiary will merge with Janus and will become a wholly owned subsidiary of Henderson, which will remain as the parent company. Henderson will be renamed Janus Henderson Group PLC. Upon the close of the merger, a holder of Janus common stock can expect to receive 4.7190 Henderson shares. As part of this transaction, Henderson will implement a share consolidation, or 10-1 reverse stock split. It is expected that Henderson shareholders and Janus shareholders will own approximately 57% and 43% of the new Janus Henderson effective immediately upon the completion of the merger. Shares of Janus common stock currently trade on the New York Stock Exchange, while ordinary shares of Henderson, at this time, trade on the London Stock Exchange. Henderson currently also maintains a listing of CDIs, each representing a beneficial interest in one ordinary Henderson share on the Australian Stock Exchange. The securities are listed as HGG on each respective exchange. The company expects that shares will be delisted from the LSE, while ordinary shares of the new Janus Henderson will be listed on the New York Stock Exchange under the symbol JHG.The CDIs will remain quoted and traded on the market operated by the Australian Exchange for a short period of time after the merger closes under the old symbol. Once the merger is complete, the securities will be traded under the new JHG ticker. In the interim, we have adjusted our fair value estimate to AUD 43 from AUD 3.90 and to GBX 250 from GBX 240 to account for the reverse stock split and currency changes. Fundamentally, however, our views remain unchanged.Analyst: Stephen Ellis

On Oct. 3, 2016, Henderson Group entered into a merger agreement with Janus Group PLC. As part of that merger, a subsidiary will merge with Janus and will become a wholly owned subsidiary of Henderson, which will remain as the parent company. Henderson will be renamed Janus Henderson Group PLC. Upon the close of the merger, a holder of Janus common stock can expect to receive 4.7190 Henderson shares. As part of this transaction, Henderson will implement a share consolidation, or 10-1 reverse stock split. It is expected that Henderson shareholders and Janus shareholders will own approximately 57% and 43% of the new Janus Henderson effective immediately upon the completion of the merger. Shares of Janus common stock currently trade on the New York Stock Exchange, while ordinary shares of Henderson, at this time, trade on the London Stock Exchange. Henderson currently also maintains a listing of CDIs, each representing a beneficial interest in one ordinary Henderson share on the Australian Stock Exchange. The securities are listed as HGG on each respective exchange. The company expects that shares will be delisted from the LSE, while ordinary shares of the new Janus Henderson will be listed on the New York Stock Exchange under the symbol JHG.The CDIs will remain quoted and traded on the market operated by the Australian Exchange for a short period of time after the merger closes under the old symbol. Once the merger is complete, the securities will be traded under the new JHG ticker. In the interim, we have adjusted our fair value estimate to AUD 43 from AUD 3.90 and to GBX 250 from GBX 240 to account for the reverse stock split and currency changes. Fundamentally, however, our views remain unchanged.Analyst: Stephen Ellis

Updating Our FVE for Janus to Account for 10-1 Reverse Split and Currency Changes

Director - Research, Consulting and Advisory, BondAdviser

Nicholas Yaxley

Director - Research, Consulting and Advisory

Australian bonds & fixed income research

BondAdviser

BondAdviser is the central reference point for intelligent information on Australian fixed income markets. We help you make informed decisions by providing unbiased research, transparent pricing data, analytics, portfolio tools and education.

BondAdviser has the broadest coverage of retail-accessible ASX-listed and over-the-counter Australian bonds and fixed income securities. We make it easy for you to review and compare investments before you place an order with your broker or dealer.

In <a href="https://www.bondadviser.com.au/blog/the-demand-we-have-been-waiting-for" target="_blank">November 2016</a> we stated a large proportion of redemptions would be reinvested in existing corporate issues to achieve some degree of sectoral diversification away from the banks. Since then, the demand/supply imbalance has squeezed trading margins on corporate hybrids to the point where some security valuations are being stretched from a trading margin risk perspective.Although we expect tight supply dynamics to continue and support expensive valuations, particularly for corporate listed securities, new investors should be aware of the inherent risk. For investors already holding these securities there is probably no reason to sell as scheduled corporate redemptions will continue to intensify demand in a relatively small market. We believe this situation of demand over supply will persist. However, given valuations are not reflective of risk profiles, we will be reviewing our recommendations if corporate hybrid margins continue to tighten.

In November 2016 we stated a large proportion of redemptions would be reinvested in existing corporate issues to achieve some degree of sectoral diversification away from the banks. Since then, the demand/supply imbalance has squeezed trading margins on corporate hybrids to the point where some security valuations are being stretched from a trading margin risk perspective.Although we expect tight supply dynamics to continue and support expensive valuations, particularly for corporate listed securities, new investors should be aware of the inherent risk. For investors already holding these securities there is probably no reason to sell as scheduled corporate redemptions will continue to intensify demand in a relatively small market. We believe this situation of demand over supply will persist. However, given valuations are not reflective of risk profiles, we will be reviewing our recommendations if corporate hybrid margins continue to tighten.

Valuations Stretched on ASX-Listed Corporate Hybrids

United States

Janus Henderson Group plc operates as an investment management company. The Company provides investment advisors for equities, fixed income, property, and private equity sectors. Janus Henderson Group serves customers worldwide.

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Janus Henderson (JHG US)

The War on Greenwashing: UK Stewardship Code "Successful Signatories" Has Broader Implications

Telegraph from European front in global war on greenwashing. U.K. names stewardship victors ("not greenwashers"). Many notable casualties. Anti...

Kyle Rudden

🇯🇵 JAPAN • Revisions & Results Update 1st April - Masking the Problem

WEDNESDAY 1ST APRIL - The fallout in the financial Sectors continued on Wednesday with Dai Ichi Life Insurance (8750 JP)halving its Ordinary Profit...

Campbell Gunn

Holding the Reigns on Aussie Value Stocks

Stick to Growth. Growth has outperformed Value by 10%pts year-to-date and we expect its outperformance to continue for the remainder of the year,...

Shane Lee

Updating Our FVE for Janus to Account for 10-1 Reverse Split and Currency Changes

On Oct. 3, 2016, Henderson Group entered into a merger agreement with Janus Group PLC. As part of that merger, a subsidiary will merge with Janus...

Morningstar, Inc.

Valuations Stretched on ASX-Listed Corporate Hybrids

In November 2016 we stated a large proportion of redemptions would be reinvested in existing corporate issues to achieve some degree of sectoral...

BondAdviser

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