Why Active Matters When Investing in Japan
When investing in Japanese businesses, we believe it is imperative to select a manager who is immersed in the culture and can perform in-depth, company-specific research to build a concentrated portfolio of Japanese companies that can outperform a benchmark and weather volatility.
Masakazu Takeda, CFA, CMAPortfolio Manager
Tadahiro Fujimura, CFA, CMAPortfolio Manager
Yu Shimizu, CMAPortfolio Manager
Takenari Okumura, CMAPortfolio Manager
Japan is a market ripe for active, research-oriented managers for the following reasons:
1. Indices are Dominated by“Sleepy Giants”
The major Japanese indices are dominated by large, mature, low-growth companies. However, just below this top tier in terms of size, there are many high-quality, long-term growth opportunities not well-represented in the indices.
2. Language Barriers and Corporate Culture
Japan remains a mystery for many U.S. investors as language barriers, a unique corporate culture, and business operating environment make the country a difficult market for foreign investors to understand. In-country managers and research teams can understand the nuances of Japan and develop relationships with Japanese corporate management, correctly interpreting and translating research into winning investment ideas.
3. Inexperienced Investor Base
Many financial institutions, such as pension funds, are staffed with managers who typically rotate out of their position after a couple of years. As a result, institutional managers tend to have a thin knowledge base and lack experience through full market cycles. Further, local retail investors do little research and, conditioned to expect poor returns, trade the market with a short-term orientation.
Buy the Manager, Not the Market
We believe the best way to access the Japanese market is through active management. The Hennessy Japan Fund offers:
1. Experienced, “Feet on the Street” Management
The Hennessy Japan Fund is sub-advised by Tokyo-based SPARX Asset Management, one of the largest and most experienced independent Asia-based asset management specialists. SPARX has experienced professional money managers who practice a research-intensive investment process and have a deep understanding of the inner workings of corporate Japan.
2. Impressive Excess Returns
Over the past 10 years through December 31, 2022, the Fund (HJPIX) provided strong excess returns, delivering an alpha of 2.26 relative to the Tokyo Stock Price Index (TOPIX).
3. Consistently Strong Performance
The Japan Fund (HJPIX) has significantly outperformed the Tokyo Price Stock Index (TOPIX) over the 10-year and since inception periods.
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