Market Commentary and Fund Performance

The Portfolio Managers of Tokyo-based SPARX Asset Management Co., Ltd., sub-advisor to the Hennessy Japan Small Cap Fund, share their insights on the Japanese market and Fund performance.

December 2023
  • Tadahiro Fujimura
    Tadahiro Fujimura, CFA, CMA
    Portfolio Manager

Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Performance data current to the most recent month end, and standardized performance can be obtained by viewing the fact sheet or by clicking here.

Market Commentary and Fund Performance for November 2023

Early in the month, the Japanese stock market rose on the back of the U.S. Federal Open Market Committee (FOMC) meeting’s unchanged policy rate and lower U.S. long-term interest rates due to U.S. employment data being below market expectations.

The market peaked toward mid-month due to Japanese companies’ favorable earnings calls and waning expectations of an additional U.S. interest rate hike amid a lower-than-expected U.S. consumer price index (CPI). After a rally fueled by diminishing geopolitical risks in the Middle East and lower U.S. long-term interest rates, the yen’s appreciation, which temporarily advanced to JPY 146 to the U.S. dollar, weighed on the market, which turned downward. Nevertheless, the month ended above where it began. As a result, the Tokyo Stock Price Index rose by 8.0% month over month, and the benchmark for the Fund, the Russell/Nomura Small CapTM Index, rose by 6.81% over the same period. The Fund’s performance this month rose by 6.32% (HJSIX), underperforming its benchmark.

Positive contributors to the Fund’s performance this month included semiconductor production equipment manufacturer Towa Corporation; automotive stamping component and refrigerated vehicle manufacturer Topre Corporation; and employee benefit service contractor Benefit One Inc. Towa benefited from a considerable upward revision to earnings due to improved profitability in its mid-term earnings call. Topre’s upward revision to its full-year forecast in its mid-term earnings call stemmed from a recovery in automobile production and a weaker yen, fueling its share price gains. Benefit One’s share price rose after it announced a tender option bond (TOB) at a premium price.

Conversely, stocks with an adverse impact included hospital-related healthcare service provider Ship Healthcare Holdings, Inc.; Italian restaurant chain operator Saizeriya Co., Ltd.; and offshore civil engineering stalwart Penta-Ocean Construction Co., Ltd. Ship Healthcare’s share price dropped after it announced extraordinary losses in its Myanmar business. Saizeriya dipped, likely due to profit-taking in response to its rising share price and news of frog-contaminated food at its restaurants. Penta-Ocean Construction’s share price fell as a backlash to its previous rise and due to mid-term earnings falling short of market expectations.

Fund Activity

We did not make any new investments this month. We increased the portfolio’s weight mainly in undervalued domestic demand-related stocks and partially sold stocks that made gains.

Outlook for December 2023

The Japanese stock market has benefited from the calming of U.S. inflation and equities rose sharply in November. The TOPIX is approaching its highest level since the year began, and a sense of caution about high prices, it will likely lead to a short-term slowdown in price rising. The forex market also continues to be volatile due to speculation of a shift in U.S. monetary policy. While the yen’s appreciation risk depends on the Bank of Japan’s policies and trends in U.S. economic indicators, we think the current exchange rate stays at sufficiently weak, which would give less negative impact on exporters and it may positively effect domestic demand-driven companies. Furthermore, these firms with consumer-based sales are performing well due in part to a greater-than-expected inbound tourism effect. Combined with a capital investment recovery, it could drive robust corporate earnings underpinning higher share prices leading into the new fiscal year. We will not make significant changes to our investment strategy and would like to expand the Fund’s portfolio in undervalued stocks based on performance expectations for the next fiscal year and beyond. Moreover, we will also seek to identify highly undervalued emerging stocks with earnings growth potential over the medium to long term.

Click here for Fund Holdings.

You might also like

Get insights and news delivered to you.

Sign up for updates

Learn how Hennessy approaches investing.

Our Philosophy

Let's work together to get you on your way.

Start Investing
Contact Us
Hennessy Funds
7250 Redwood Boulevard, Suite 200
 Novato, CA 94945
Follow Us

The Funds' investment objectives, risks, charges, and expenses must be considered carefully before investing. The prospectus contains this and other important information about the investment company. Please read it carefully before investing. A hard copy of the prospectus can be requested by calling 1-800-966-4354.

Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted and can be found here. Performance data current to the most recent month end may be obtained from HennessyFunds.com Hennessy Funds Standardized Performance

Neither forward earnings nor earnings growth is a measure of a fund’s future performance.

Mutual fund investing involves risk. Principal loss is possible. Current and future holdings are subject to risk. Small and medium-sized companies may have more limited liquidity and greater price volatility than larger companies. Investments in foreign securities may involve political, economic, and currency risks, greater volatility, and differences in accounting methods. The Focus, Total Return, Balanced, Large Cap Financial, Small Cap Financial, and Midstream Funds are considered non-diversified funds. A non-diversified fund, which may concentrate its assets in fewer individual holdings than a diversified fund, is more exposed to individual stock volatility than a diversified fund. A fund that concentrates its investments within one country, one sector, or a small group of industries, such as Japan, Technology, Financials, or Energy, may be subject to a higher degree of market risk. Investments in debt securities typically decrease in value when interest rates rise. The risk is greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Mortgage- and asset-backed securities are subject to prepayment risk, which is the risk that the borrower will prepay some or all of the principal owed to the issuer. Funds that invest in pooled investment vehicles (including ETFs) may experience higher fees. The formula-based strategy employed by some Funds may cause those Funds to buy or sell securities at times when it may not be advantageous.

ETFs are subject to additional risks that do not apply to conventional mutual funds, including the risks that the market price of an ETF’s shares may trade at a premium or discount to its net asset value, an active secondary trading market may not develop or be maintained, or trading may be halted by the exchange in which they trade, which may impact a Fund’s ability to sell its shares. Shares of any ETF are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns.

ESG investing risk is the risk stemming from the Environmental, Social, and Governance factors that the Fund applies in selecting securities. The Fund intends to invest in companies with measurable high ESG ratings relative to their sector peers, and screen out particular companies that do not meet its ESG criteria. This may affect the Fund’s exposure to certain companies or industries and cause the Fund to forego certain investment opportunities. The Fund’s returns may be lower than other funds that do not seek to invest in companies based on ESG ratings. The Fund seeks to pursue its investment objective by using proprietary models that incorporate quantitative analysis. There is no guarantee that the Portfolio Managers’ use of these models will result in effective investment decisions for the Fund. From time to time, the Fund may concentrate its investments in one or more industry sectors. The Fund is currently substantially invested in the Consumer Discretionary and Health Care sectors and its performance is therefore tied closely to, and affected by, developments in these industries.

Master Limited Partnerships (MLPs) and MLP investments have unique characteristics. A Fund does not receive the same tax benefits as a direct investment in an MLP.

The prices of MLP units may fluctuate abruptly and trading volume may be low, making it difficult for a Fund to sell its units at a favorable price. MLP general partners have the power to take actions that adversely affect the interests of unit holders. Most MLPs do not pay U.S. federal income tax at the partnership level, but an adverse change in tax laws could result in MLPs being treated as corporations for federal income tax purposes, which could reduce or eliminate distributions paid by MLPs to the Fund. If the Energy Transition Fund’s MLP investments exceed 25% of its assets, it may not qualify for treatment as a regulated investment company (“RIC”) under the Internal Revenue Code (“Code”), and the Fund would be taxed as an ordinary corporation, which could substantially reduce its net assets and its distributions to shareholders. The Midstream Fund is treated as a regular corporation, or “C” corporation, for U.S. federal income tax purposes, and therefore, is subject to U.S. federal income tax on its taxable income at the graduated rates applicable to corporations (currently a maximum rate of 21%) as well as state and local income taxes. The Midstream Fund will not benefit from current favorable federal income tax rates on long-term capital gains, and Fund income and losses will not be passed on to shareholders. The Midstream Fund accrues deferred income taxes for future tax liabilities associated with the portion of MLP distributions considered to be a tax-deferred return of capital and for any net operating gains as well as capital appreciation of its investments. This deferred tax liability is reflected in the daily NAV, and as a result, the Fund’s after-tax performance could differ significantly from the underlying assets even if the pre-tax performance is closely tracked.

Glossary of Terms contains definitions and additional information.

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.

Opinions expressed are subject to change at any time, are not guaranteed, and should not be considered investment advice.

News and Media Page:

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.

The Hennessy Funds are offered only to United States residents, and information on this web site is intended only for such persons. Nothing on this web site should be considered a solicitation to buy or an offer to sell shares of any Hennessy Fund in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction.

Quasar Distributors, LLC, Distributor.

Subscribe for Updates

*Required Fields