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.

September 2023
  • Tadahiro Fujimura
    Tadahiro Fujimura, CFA, CMA
    Portfolio Manager

Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Performance data current to the most recent month end, and standardized performance can be obtained by viewing the fact sheet or by clicking here.

Market Commentary and Fund Performance for August 2023

The Japanese stock market started the month on the decline after credit rating agency Fitch Ratings downgraded U.S. treasuries, depressing U.S. equities. Mid-month, the market further declined due to pessimism fueled by soft economic indicators in China (e.g., the consumer price index) and a major Chinese real estate developer filing for bankruptcy protection in the U.S. The market recovered towards the month-end as additional interest rate cuts in China were well received, and concerns about further interest rate hikes receded after the Jackson Hole meeting. Ultimately, the month ended above where it began. As a result, the Tokyo Stock Price Index fell 1.99% month over month, while the benchmark for the Fund, the Russell/Nomura Small Cap™ Index, fell by 0.89% over the same period. The Fund’s performance this month decreased by 0.85% (HJSIX), slightly outperforming its benchmark.

Click here for full, standardized Fund Performance.

Positive contributors to the Fund’s performance this month included semiconductor production equipment manufacturer Towa Corporation; leading HVAC contractor Takasago Thermal Engineering Co., Ltd.; and children’s amusement facility operator Aeon Fantasy Co., Ltd. Towa’s share price rose on the back of steady incoming orders despite a significant profit decline in its Q1 earnings. Takasago Thermal benefited from its upward revision to profit targets in the current fiscal year’s interim earnings forecast due to improved profitability. Aeon Fantasy’s share climbed in response to well-received monthly sales and the previous month’s decline.

Meanwhile, stocks with a negative contribution included large format inkjet printer manufacturer and distributor Mimaki Engineering Co., Ltd.; logistics service provider and warehouse developer SBS Holdings, Inc.; and employee benefits outsourcing contractor Benefit One Inc. Mimaki Engineering announced a significant profit decrease in its Q1 earnings due to increased expenses and other factors, fueling a growing bearishness toward the firm.

SBS Holdings saw its share price decline due to various concerns, including logistics performing below projections despite growing profit in Q2. The market took a bearish stance on Benefit One due to poor Q1 performance.

Outlook for September 2023

In July and August, the Japanese stock market saw the highly volatile Nikkei Stock Average and the emerging stock-oriented TSE Growth Market Index decline, but the TOPIX and small- and mid-cap indices continued to rise, albeit slightly, showing strength. These trends developed into the selling of stocks that had received significant investments from foreign and institutional investors due to the summer holidays and their surging prices in the first half of this year. Meanwhile, sustainability appears high, as there are signs indicating that investors continue to actively evaluate companies that intend to change their financial strategies, such as utilizing surplus capital through share buybacks and dividend increases. While the risks in the Chinese economy grow, domestic demand should remain robust, especially in capital investment and consumption. Small-caps with many domestic demand companies should have a relative advantage in line with advancing pass-through pricing. Our investment policy is to avoid pessimism about declining short-term performance, focus on companies that seek positive investment results while improving profitability and expanding profits through pass-through pricing and production increases.

Click here for Fund Holdings.

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Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted and can be found here. Performance data current to the most recent month end may be obtained from HennessyFunds.com Hennessy Funds Standardized Performance

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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.

Opinions expressed are subject to change at any time, are not guaranteed, and should not be considered investment advice.

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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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