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

Market Commentary and Fund Performance for June 2022

The Japanese stock market started the month on an upward trajectory due to the easing of border control measures in Japan and expectations of economic recovery following the lifting of the citywide quarantine in Shanghai, China. Mid-month, the stock market fell sharply as the Federal Reserve Board (FRB) raised interest rates by 0.75% for the first time in 28 years, and the Swiss National Bank decided to raise interest rates for the first time in 15 years, raising concerns of an economic slowdown due to global monetary tightening. As the month ended, a pause in the rise of long-term interest rates in the U.S. mitigated the Japanese stock market’s decline, but it ultimately ended the month at a level lower than it began. As a result, the Tokyo Stock Price Index fell 7.25% month over month. The Fund’s (HJSIX) performance declined by 5.10%, outperforming its benchmark.

Click here for full, standardized Fund Performance.

This month, the most significant contributor was Internet-based life insurance provider LIFENET Insurance Company. While it had slowed its rate of acquiring new customers, which increased during the COVID-19 pandemic, it had maintained its growth trajectory. Nevertheless, its share price had plummeted, making it feel undervalued and fueling its gains this month.

Meanwhile, the greatest negative impact came from biomass power station operator and industrial waste recycler TRE Holdings Corporation. It had no particularly unwelcome news, but its share price fall is likely a backlash to the sharp rise it has experienced in the first half of this year.

This month, we made three new investments in the machinery and service sectors. Those companies should benefit from post-COVID-19 economic normalization. On the other hand, we fully divested a stock due to concerns of fading special demand gained during the pandemic.

Outlook for July 2022

Resolution in the Ukraine situation looks bleak, energy prices remain high, interest rates are rising, and semiconductor and other component shortages remain, coalescing into a storm of bad news for the stock market. However, energy and commodity prices have lost some upward price momentum, and the component shortages show signs of partial resolution. Therefore, the depreciating yen’s upsides, which have not yet appeared due to rising costs and production cutbacks, should increase over time. Moreover, since the Japanese economy has been slower to recover than those abroad, it should have considerable room for recovery. Corporate earnings should also recover significantly this year and beyond. Because of these predictions, we believe the stock market will take an upswing, meaning pessimism about the current situation should be unnecessary. Our investment strategy remains to invest in stocks with high growth potential and low overvaluation among those that have fallen sharply. We also intend to increase our investments in companies that can remain highly inflation-responsive and keep up with medium-term social changes while significantly benefiting from the Japanese economic recovery.

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)

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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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