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.

July 2021
  • Tadahiro Fujimura
    Tadahiro Fujimura, CFA, CMA
    Portfolio Manager

Fund Performance Review

This month, the Japanese stock market began to climb due to rising expectations for resumed economic activity stemming from increasing vaccinations. However, toward the end of the month, senior Federal Reserve officials mentioned the possibility of starting interest rate hikes in 2022, negatively impacting the market by heightening its sense of caution. This development alongside concerns of another COVID-19 wave had a negative impact on the market. As a result, the Tokyo Stock Price Index fell 0.27% month-over-month. In comparison, the Russell/Nomura Small Cap Index rose 1.87% over the same period and the Fund returned 0.57% (HJSIX).

Among positive contributors to the Fund’s performance this month were Takeei Corporation which is a biomass power plant operator and industrial waste recycler, Musashi Seimitsu Industry Co., Ltd. which produces automotive parts mainly for Honda, and Benefit One Inc., which is a provider of outsourcing of employee benefits and other services. Takeei’s stock price was boosted by its announcement of this fiscal year’s earnings projection with double-digit profit growth and the market’s recent attention on renewable energy. We believe that Musashi Seimitsu Industry saw its stock price rise due to its announcement of increased orders for parts for electric vehicles (EVs) and expectations for high profitability of EV-related modular parts. Benefit One raised expectations for growth based on its announcement of expanded vaccination support and new services in health-related services for employees.

As for laggards, Siix Corporation, an electronics part assembler that promises growth in the automotive industry, announced solid earnings, but investors sold its stock in an apparent reaction to its gains last year. Daihen Corporation, a manufacturer of transformers and semiconductor power supplies, appears to have drawn a bearish sentiment due to this fiscal year’s slowdown in earnings growth potential caused by rising copper prices.

Click here for full, standardized Fund Performance.

Outlook for July 2021

The current outlook for Japanese corporate performance indicates reduced profits due to the uncertainty caused by the resurgence of COVID-19 and the higher costs associated with rising crude oil, precious metal, and agricultural commodity prices. However, as we head into second half of this year, we expect many of these concerns to improve. Additionally, the market has apparently factored in its fears of rising interest rates. Thanks to these factors, we believe the Japanese stock market could very well return to an upward trajectory soon.

As for our investment strategy, we intend to consider selling stocks that had performed well on the back of continued stay-at-home demand, as the performance gap between companies is growing. At the same time, we would like to continue making new investments and expanding the portfolio’s holdings in stocks that could see significant profit growth during the coming shift toward a carbon-neutral society and normalized economic activity.

Click here for Fund Holdings.

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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.

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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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