Japan Fund Investment Strategy

Portfolio Manager Masa Takeda discusses the Fund's investment strategy and the benefits of managing the portfolio with “feet on the street” in Japan.

May 2017
  • Masakazu Takeda
    Masakazu Takeda, CFA, CMA
    Portfolio Manager
 

Masakazu Takeda: Japan is culturally a very unique country. Some of the unique aspects include different management philosophies, different ways of doing business, different labor practices, and not to mention the language. We believe that you need a local investor with deep knowledge and local insights to perform well in this market.

Concentrated Portfolio

As an active manager, we believe that a concentrated, long-term oriented portfolio is the best way to produce market-beating returns over time. If you have too many stocks in your portfolio, it certainly helps to average out the declines in the stocks across your portfolio and smooth out the portfolio return in the bear market, but it cannot escape the market force of the down market. On the other hand, if you have only a few stocks in your portfolio, and if you choose those names correctly, then there's a good chance that your portfolio will actually go up in value despite the overall bear market.

Key Investment Criteria

Our mantra is "invest in a great business with exceptional management at an attractive price."  And, our definition of intrinsic value is the present value of all the future cash flows to be generated from a business, so to that end, we strive to invest in companies with high returns on equity, number one, and number two, sustainable and predictable, above-average, long-term earnings growth rate. And number three, strong cash flow generation. Because we want to invest in these companies for the long-term, through economic cycles, we want to make sure that our companies have a long-term, proven track record with a time-tested business model.

Focus on Global, Blue Chip Companies

We're large-cap investors and because of that, we prefer to invest in global Japanese companies with scalable businesses, in particular, we prefer to invest in global blue chip companies. We think investing in global blue chip companies can be a natural hedge against currency swings. What I mean by that is, from a U.S. dollar investor perspective, if the yen depreciates against the dollar, it reduces the dollar return on equity, but it improves the competitive advantage of the business abroad. And that should boost the earnings of the business and dollar investors will be compensated by that. On the other hand, if the yen strengthens against the dollar, it will immediately improve the dollar return on equity while making the business less competitive abroad. But, over the long term, global blue chip businesses can overcome the strong yen through secular volume growth of their business.

Market Conditions and Portfolio Performance

Our aim is always, first and foremost, to protect the downside as much as possible. So in relation to the benchmark, we tend to do better in a bear market than in a bull market. In a rising market, we are generally happy just to keep pace with the benchmark, or in some years, we may even lag slightly. We also need, as a bottom-up fundamental stock picker, we need a fundamentally-driven stock market for our portfolio to be rewarded.

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To view the top 10 holdings of a Fund, please click the Fund name: Cornerstone Growth, Focus, Cornerstone Mid Cap 30, Cornerstone Large Growth, Cornerstone Value, Total Return, Equity and Income, Balanced, Energy Transition, Midstream, Gas Utility, Japan, Japan Small Cap, Large Cap Financial, Small Cap Financial, Technology. Fund holdings are subject to change and not recommendations to buy or sell any security.

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To view the Morningstar ratings for the Japan Fund, please click here. (Media - TD Ameritrade)

To view the Morningstar ratings for the Focus Fund, please click here. (Media - CNBC-B. Macualey).

1 USD = 105.36 Yen as of 07/27/2020 (Media - Ticker - M. Takeda)

Tom White is a TD Ameritrade Network contributor and is not affiliated with the Hennessy Funds. Content is not investment advice, or a recommendation of any security, strategy, or account type. Options involve risks and are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses.(Media - TD Ameritrade-Rothberg)

To view the Morningstar ratings, please click here.

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