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.

February 2024
  • 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 January 2024

The Japanese stock market rose sharply early in the month, driven by expectations that the Bank of Japan (BOJ) would postpone interest rate hikes in order to thoroughly assess the impact of the Noto Peninsula earthquake. The yen depreciation against rising U.S. long-term interest rates driven by hawkish comments from U.S. Fed officials also contributed to its rise. The launch of the new NISA (Japan’s tax exemption scheme) spurred buying demand from individual investors, while expectations surrounding the Tokyo Stock Exchange reform attracted significant inflows from overseas investors. From the middle to the end of the month, there were moments of temporary decline, particularly in semiconductor-related stocks, due to profit-taking pressure and lower-than-expected earnings forecasts from leading U.S. semiconductors. However, ultimately, the month ended above where it began. As a result, the Tokyo Stock Price Index rose significantly by 3.98% month over month, while the benchmark for the Fund, the Russell/Nomura Small Cap™ Index returned -0.25% over the same period. The Fund’s performance returned -1.48% (HJSIX), underperforming its benchmark.

Stocks that positively contributed to the Fund’s performance during the month included Topre Corporation, an automotive stamping component and refrigerated truck manufacturer; and Asia Pile Holdings Corporation, a leading foundation pile manufacturer and installer across Asia. Topre Corporation received broker upgrades and saw rising expectations that its U.S. automotive parts business would turn around after struggling in 2023. Asia Pile Holdings’ upward revision of earnings forecasts due to improved profitability was received positively by the market.

Conversely, stocks that negatively contributed included ValueCommerce Co., Ltd., Yahoo Group’s Internet advertising provider; and PeptiDream, Inc., a bio drug discovery venture that searches candidate ethical substances using PDPS, a proprietary technology for the creation of constrained/macrocyclic peptides. ValueCommerce suffered due to the expected profit decrease in its new fiscal year’s earnings forecast. PeptiDream’s share price dipped as a backlash to the previous month’s gains and due to the impact of brokers’ downward revision on earnings forecast.

Outlook for February 2024

The Japanese stock market has been rising rapidly since the beginning of the year, mainly in large-cap, high-dividend stocks that were likely bought due to the new NISA scheme. We see a potential risk that this momentum may wane, fueling temporary corrections. Nevertheless, we see no need for pessimism as regards to rising short-term volatility since there is a strong sense of lagging in small-caps and expected economic improvements in Japan and abroad. Despite the growing uncertainty in domestic political conditions, such as the burgeoning political fund issue, the impact on the stock market is considered minimal due to rising wages and economic growth.

We have not made any significant changes to our investment strategy. We will expand our investments in stocks that can grow while implementing price pass-through, based on their earnings forecasts for FY2024 and beyond. In particular, we will focus on domestic consumption and service-related companies that should benefit from the domestic economic recovery and are delayed in price pass-through.

Click here for Fund Holdings.

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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

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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.

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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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