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 market and Fund performance.

October 2020
  • Tadahiro Fujimura
    Tadahiro Fujimura, CFA, CMA
    Portfolio Manager

Fund Performance Review

In September, the Japanese stock market began to climb on expected improvements in U.S. and Chinese economic indicators and development of a COVID-19 vaccine. Prime Minister Shinzo Abe resigned and was replaced by Yoshihide Suga, but the change in administration did not disturb the market due to the confidence that governmental policy would remain consistent. Toward the end of the month, an increase in the number of new COVID-19 cases in the West, along with growing fears of a tax hike due to the apparent lead that Joe Biden has in the U.S. presidential election, weighed on the market. As a result, the Tokyo Stock Price Index (TOPIX) rose by 1.79% month-over-month, while the Fund’s benchmark, the Russell/Nomura Small Cap Index, significantly outperformed TOPIX, increasing by 4.44% over the same period. The Fund’s performance increased by 5.11% (HJSIX).

This month, fiber optic lines, mobile phones, and home electronics sales contractor Hito-Communications Holdings, Inc. saw its share price rise, likely due to expectations of greater demand for sightseeing-related products and services based on an anticipated recovery in the number of tourists to Japan. OEM apparel manufacturer Matsuoka Corp. is building core production facilities for property, plant, and equipment in Vietnam to reduce its reliance on China. The market’s bullish response to this news likely boosted the firm’s share price. As for the laggards, home electronics volume retailer Nojima Corp. saw its share price declined, likely due to profit taking after its recent, meteoric rise. Gyomu Super franchise chain operator Kobe Bussan Co., LTD. also contributed negatively, likely due to profit taking after its recent, sustained climb. 

Market Outlook

Having made up for losses since the start of the year, the stock market appears to be experiencing a rising sense of exuberance about some stocks. However, given the continuation of monetary easing, we believe there is little cause for concern that the market will plummet. The pick-up in trading in undervalued stocks in August should prove to be a positive trend amid continuing corrections in overvalued stocks and increased speculation. Our investment strategy is to keep divesting stocks that have seen continued and significant share price increases since the last quarter. Meanwhile, we will expand the Fund's holdings in stocks that are lagging significantly behind their expected post-COVID-19 performance. We aim to focus on the impact that the Suga administration’s policies will have on digital transformation, industrial restructuring, and other structural changes.

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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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