The Hennessy Japan Fund (Trades, Portfolio) screens for Japanese companies with strong businesses and management, regardless of market cap. The fund follows a value-oriented approach and usually has a concentrated number of holdings.
Year-to-date, the fund has returned 6.98%, compared to negative returns for both its indices — Russell/Nomura Total Market Index at -3.03% and the Tokyo Stock Price Index at -3.49%. As of Dec. 31, the majority of the portfolio was held in consumer discretionary stocks at almost 25%, followed by consumer staples at 13%.
In the portfolio commentary, portfolio managers Masakazu Takeda and Tadahiro Fujimura write that they believe a weaker yen will have a long-term positive effect on the exporting sector. They also note that the 2020 Olympic Games in Tokyo will have a significant economic impact, through the $22 billion estimated to be spent on transportation infrastructure, and $100 billion on capital investment such as hotels, and commercial complexes.
The following are Hennessy’s portfolio adjustments for the period ended Jan. 31.
Add
FUJI Seal International (TSE:7864, Financial)
During the period ended Jan. 31, the fund added to its existing positions in 12 companies; the largest impact to the portfolio was 23,200 shares of FUJI Seal at an average price of ¥3,466.58 per share, bringing the total position to 107,800 shares.
FUJI Seal provides shrink sleeve labels, self-adhesive labels, spouted packages, and packaging machinery on a global scale. The stock has declined 8% over the past year and is now priced at ¥3,285 with a P/E ratio of 15.9 and P/S ratio of 0.72.
Annual net income has remained at steady levels, increasing by just 2.65% over the past five years. In FY 2014, net income was ¥5,410 million.
The current dividend yield is 1.28%, which is close to the two-year high. The payout ratio is 17%, indicating room for growth in the dividend yield.
Reduce
Itochu Corp (TSE:8001, Financial)
The fund trimmed its position in six stocks, the largest impact was in Itochu Corp. Hennessy sold 17,200 shares for an average price of ¥1,281.66 per share, leaving a total of 30,300 shares in the position.
The stock price has increased 5% over the past year and now trades at ¥1,258.50. The P/E ratio is 7.4 and the P/S ratio is 0.37. When comparing the price to the Peter Lynch earnings line, the stock is undervalued.
The company is engaged is domestic trading, import-export, and overseas trading of products such as textile, machinery, metals, chemicals, and food among others.
Itochu’s operating margin has been in decline since FY 2011, and in 2013 was 5.33%.
The current dividend yield is 3.66%, while the payout ratio is 19%.
Sold out
Komatsu Ltd. (TSE:6301, Financial)
Hennessy sold out of one position, selling 7,500 shares of Komatsu for an average ¥2,480.43 per share. The fund had been gradually trimming the position as the share price fluctuated. The following graph shows the fund’s holding history.
Komatsu manufactures and sells industrial-use products and services. Its two business segments are construction, mining, and utility equipment, as well as industrial machinery.
The stock has risen 10% over the past year and is now priced at ¥2,363.50 with a P/E ratio of 18.2 and P/S ratio of 1.17.
Net income in FY 2013 was ¥126,321 million. Over the past five years, net income has increased about 29%.
The dividend yield is 2.45%, which is close to the company’s 10-year high. The dividend payout ratio is just 30%, indicating the dividend is sustainable and has room for growth in the future.
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