Market Commentary and Fund Performance

Tad Fujimura of Tokyo-based SPARX Asset Management Co., Ltd., sub-advisor to the Hennessy Japan Small Cap Fund, shares his insights on the Japanese market and Fund performance.

January 2022
  • Tadahiro Fujimura
    Tadahiro Fujimura, CFA, CMA
    Portfolio Manager

Fund Performance Review

This month, the Japanese stock market started on an upward trajectory as a backlash to the sudden dip at the end of the previous month, which was due to caution toward the new COVID-19 Omicron variant. Mid-month, prices took a downward turn due to central banks’ moves toward normalizing monetary policy worldwide and concerns about China’s economic future after cutting interest rates. As year-end approached, fewer market participants meant lower trading volume. At the same time, those who were active bought semiconductor-related and highly undervalued large-cap stocks. As a result, the Tokyo Stock Price Index (TOPIX) rose 1.88% month over month, while the benchmark for the Fund gained 1.20% over the same period. The Fund’s performance this month increased by 1.57% (HJSIX), slightly outperforming its benchmark.

This month, the stock that had the most significant contribution to the Fund’s performance was heavy-lifting chain and pulley producer Kito Corporation saw its share price climb, likely on the back of expectations for economic recovery in China and elsewhere overseas. Saitama-based regional bank Musashino Bank, Ltd. also made share-price gains. While it performs well, its share price climbed likely due to expectations that it would benefit from being undervalued and rising interest rates.

Meanwhile, the stock that had the greatest negative impact on the Fund’s performance was Benefit One Inc. The employee benefits outsourcing contractor saw its share price decline. While the company’s performance is robust, its drop was likely a backlash to the significant growth it has seen recently.  

Click here for full, standardized Fund Performance.

Outlook for January 2022


The Japanese economy continues to lag behind the West’s recovery, resulting in relatively subpar equity performance in fiscal 2021. Nevertheless, this situation should have a positive effect in 2022. With the spread of COVID-19 treatments and vaccines, we believe the Japanese economy and Japanese equities have a great deal of room for recovery. Furthermore, accounting for the political risk in China, the equity overvaluation in the U.S., and monetary-tightening risks in the West, we believe the Japanese stock market could very well draw attention. On the other hand, we believe that Japan also needs to pay heed to cost pressures due to a depreciating yen and rising oil and resource prices, as well as to inflation trends. My investment policy is to selectively invest in companies that can match the economic recovery, remain highly inflation-responsive, and keep up with medium-term social changes. We believe that small-cap stocks listed on the Tokyo Stock Exchange (TSE) continue to be highly attractive because they are highly undervalued, unlike emerging stocks listed on TSE Mothers and other. We also intend to select equities by monitoring industry restructuring.

Click here for Fund Holdings.

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