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.

March 2021
  • Masakazu Takeda
    Masakazu Takeda, CFA, CMA
    Portfolio Manager
  • Tadahiro Fujimura
    Tadahiro Fujimura, CFA, CMA
    Portfolio Manager
  • Yu Shimizu
    Yu Shimizu, CMA
    Portfolio Manager
  • Takenari Okumura, CMA
    Takenari Okumura, CMA
    Portfolio 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 3, 5, and 10 years through March 31, 2021, the Fund (HJPIX) provided strong excess returns as measured by alpha relative to the Japanese market. 

 

3. Consistently Strong Performance

The Japan Fund (HJPIX) has significantly outperformed the Tokyo Price Stock Index (TOPIX) over the 1, 3, 5, 10-year and since inception periods.