The Hennessy Japan Fund contains 22 stocks and is valued at $24 million. It invests over 80% of its net assets in stock of Japanese companies, on a purely quantitative basis. Since inception in 2003 it has beat the Russell/Nomura Total Market Index return 7.16% to 3.48%.
After years of declining prices, Japan’s central bank on Thursday signaled that it could be beginning a recovery. Exports, business fixed investment, public investment, and the housing market have all began to increase, it said. Industrial production and business sentiment also improved.
“With regard to the outlook, Japan's economy is expected to recover moderately on the back of the resilience in domestic demand and the pick-up in overseas economies. The year-on-year rate of change in the CPI is likely to turn positive,” the bank said.
Risks still remain, however. The bank added: “there remains a high degree of uncertainty concerning Japan's economy, including the prospects for the European debt problem, developments in the emerging and commodity-exporting economies, and the pace of recovery in the U.S. economy.”
It also confirmed that it will continue its policy of quantitative and qualitative monetary easing as long as necessary to maintain a price stability target of 2%.
New Buy: Nidec Corporation (OSE:6594)
Hennessy purchased 21,100 shares of Nidec Corporation at an average price of 6399 yen per share in the second quarter. It has a price gain of 10% since then, trading for 7040 yen per share on Friday. Overall this year, the stock has gained 42%.
The managers of Hennessy design the portfolio by giving their best ideas the greatest weighting. They have given Nidec a 6% weighting, making it the fifth largest position.
Nidec Corp. designs and manufacturers motors that are used in a range of industries including information technology, home appliance, office equipment, automobile and industrial machinery.
In the past five years, the company has grown revenue at an annual rate of 4.2% and book value at an annual rate of 7.5%. Meanwhile, EBITDA slid at a rate of 8.2% and free cash flow at 1.5% annually.
Its long-term earnings and revenue history is below:
For the year ended March 31, 2013, Nidec net sales increased to 709.27 billion yen, compared to 682.32 billion yen the previous year. Net income dropped to 7.998 billion yen, compared to 40,731 billion yen the previous year.
Nidec’s financial results for the year were influenced by a stagnant economy in Europe, and little improvement in China and other emerging markets. This combination stymied demand for some of its major products, including personal computers, digital cameras and LCD panel manufacturing equipment. In response, it made efforts to streamline its business.
With caution toward optimistic attitudes surrounding a U.S. and Japan economic recovery going forward, Nidec is enhancing and expanding its business portfolio, and reap the benefits of streamlining its business which it began last year. For the year ending March 31, 2014, it is expecting a 12.8% increase in net sales and 525.2% increase in net income.
See the Hennessy Japan Fund’s other holdings here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Hennessy Japan Fund.