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.

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

Fund Performance Review


This month, the Japanese stock market opened lower due to credit concerns for a leading Chinese real estate developer, high oil and other resources prices, and rising U.S. long-term interest rates. From mid-month, stock prices ticked upward due to receding concerns about excessive inflation and expectations of a recovery in business performance, especially in the manufacturing sector, as the yen weakened. The rise in long-term U.S. interest rates again weighed down the market at the end of the month. Meanwhile, prices went up and down in response to the Japanese House of Representatives election and the corporate earnings news cycle, finally ending the month lower than where it began. As a result, the Tokyo Stock Price Index (TOPIX) fell 3.53% month over month, while the Russell/Nomura Small CapTM Index dropped 3.15% over the same period. The Fund’s performance this month declined by 1.32% (HJSIX), outperforming its benchmark.

This month, one of the greatest contributors to the Fund’s performance was Nishimoto Co., Ltd., a trading firm specializing in exporting Asian food overseas. While there was no specific news about Nishimoto, the easing of lockdowns in the West and expectations for a recovery in the firm’s restaurant partners seem to have driven up its share price. Construction waste recycler and biomass power station operator Tre Holdings Corporation also saw significant gains. Adopting this new name after Takeei Corporation formally merged with Rever Holdings, the company’s share price likely rose on the back of hope for synergistic effects and heightened awareness of the recycling society. General marketing contractor Hito Communications Holdings, Inc. announced an upward revision to the previous fiscal year’s profit plan, encouraging market favor.

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However, this month’s significant negative impact came from crane and hoist manufacturer Kito Corporation. Its share price fell likely due to profit-taking after it announced an upward profit correction in late September and due to concerns about its business in China amid uncertainty about the Chinese economy. Leading forklift manufacturer Mitsubishi Logisnext Co., Ltd. also saw its share price fall. Its performance was partly in response to the share price’s past rise. At the same time, the market responded poorly to the company upwardly revising only sales and not profit in its earnings presentation. Mid-sized real estate developer Tosei Corporation saw its share price drop amid apparent disappointment about the quarterly profit decline in its Q3 earnings report.

This month, we made two new investments in service industry firms, which are resilient to the impact of inflation due to domestic demand. We did not wholly divest any companies this month. We also sold some shares, mostly in companies that saw significant stock price gains, while increasing the Fund’s holdings in stocks that had fallen. 

Outlook for November 2021


With the vaccination progress so far, the number of people with COVID-19 has plummeted, leading to lifting the state of emergency and fueling expectations for future economic recovery in Japan. The end of the Japanese House of Representatives election, a source of uncertainty, and the Liberal Democratic Party (LDP) maintaining a stable majority have also brought a sense of security back to the stock market. We believe that the market will continue to perform well through year-end. On the one hand, the risks include concerns about a failing Chinese economy, the continued rise in oil and other commodity prices, and rising overseas interest rates. On the other, the high savings rate over the past two years suggests that there is much room for recovery, especially in domestic consumption. In terms of our investment strategy, we will increase the Fund’s holdings in stocks that seek significant long-term profit growth by continually contributing to the new, post-COVID society and economic normalization. We will also seek out new stocks in industries falling behind in the economic normalization process, including the domestic consumption-related, service, and construction sectors.

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