Hennessy: Two Ways to Play Japan

03/27/2014 10:00 am EST


Walter Frank



We've decided to deepen our roster of Japan stock fund; here are two fund ideas from the Hennessy Fund family that have been good performers in the Japan space in recent years, suggests Walter Frank, editor of MoneyLetter.

Hennessy Funds is a relatively small firm with $4 billion under management, including 16 mutual funds. Its funds use both active and passive management strategies and all are managed with a team approach.

The strategies aim to dampen risk and preserve apical during volatile periods and to maximize long-term returns. “Fads and emotions have no place in our investment process,” states Hennessy.

Hennessy Japan (US:HJPNX) and Hennessy Japan Small-Cap (US:HJPSX) share very similar strategies—they just look for stocks in different capitalization ranges.

Management teams at the respective funds search out “companies with strong businesses and management, trading at attractive pries.” They use in-depth research and analysis plus on-site research to identify a significant “value gap.”

Both portfolios are limited to the best ideas generated by the fund managers, who build portfolios without concern to the benchmark indexes.

The differences? Japan Small-Cap chooses stocks from the bottom 15% of Japanese firms in market cap while Japan Fund has two-thirds of assets in large-caps. The latter also has a concentrated number of holdings.

In each year, since its inception in 2007, Japan Small-Cap has bested Japan Fund except in the difficult 2011 environment. In fact, Japan Small-Cap places head of at least 94% of Japan stock funds in the trailing one-, three- and five-year periods. Recently, it had 62 holdings.

Hennessy Japan, while lagging its small-cap sibling over the five years, has nonetheless put up impressive numbers within the Japan category space, well within the top 20% for the same trailing time frames. As noted, the portfolio is concentrated with only 23 stock holdings.

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