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.

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

Fund Performance Review

This month, the Japanese stock market made significant gains amid a bullish sentiment in response to a changing political situation. Prime Minister Suga decided not to run for the ruling Liberal Democratic Party presidential election, alleviating the strong sense that the government was stagnating. Subsequently, the market rose on the back of continued buying by foreign investors and increased expectations for economic recovery due to a decline in new COVID-19 cases. On September 14, the Nikkei Stock Average hit a new high of JPY 30,670, its highest figure in roughly 31 years. However, in the second half of the month, share prices plummeted due to credit concerns for the Evergrande Group, a leading Chinese real estate developer. As a result, the month closed with truncated gains compared to those in the month’s first half. As a result, the TOPIX increased month-over-month by 2.75%, and the Russell/Nomura Small CapTM Index, the Fund’s primary benchmark increased by 1.48% over the same period. The Fund’s performance this month increased by 2.19% (HJSIX), outperforming its benchmark.

Click here for full, standardized Fund Performance.

One of the most significant contributors to the Fund’s performance this month, as in the previous month, was employee benefits outsourcing contractor Benefit One Inc. Besides its solid performance, its share price gains were likely due to expectations for its further growth after the firm announced that it had acquired a competitor. Engineering consultancy Nippon Koei Co., Ltd. also saw its share price rise. Its earnings have been robust, and its announced medium-term business plan appears to have increased market expectations for the firm.

One of the worst performers this month was Poletowin Pitcrew Holdings, Inc. It made an upward revision to its earnings as the month began, but the change was minor, so investors likely sold its shares in disappointment. Semiconductor production equipment manufacturer Towa Corporation also saw its share price drop. Its decline was apparently a reaction to significant share price gains in the past and anxiety about the Chinese economy. 

Outlook for October 2021

Japan’s economy has indeed lagged behind other countries. However, the coming end to new infections and the progress in vaccinations means that the economy has plenty of room for recovery, especially in personal consumption. Other positive factors that we are starting to see are recovery in logistics and construction, which had been stagnant due to the impact of COVID-19 and the end of the Olympics. While there are risks in the Chinese economy declining and commodity prices rising, we expect investments in relatively low-risk Japanese companies to expand. The lead-up to the House of Representatives election has engendered some uncertainty. However, we believe the market will return to its upward trend after the election and toward the year-end. In terms of our investment strategy, we will increase the Fund’s holdings in stocks that have the potential for significant long-term profit growth by continually contributing to the new, post-COVID society and economic normalization.

Click here for Fund Holdings.

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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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