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James Li
James Li
Articles (1322)  | Author's Website |

Matthews Japan Fund's Top 5 Trades in the 2nd Quarter

Fund takes stake in medical device company but sells outweigh buys

The Matthews Japan Fund (Trades, Portfolio) disclosed this week that its top five trades for the second quarter featured a new position in Hoya Corp. (TSE:7741), two position reductions and two sold out transactions.

Overseen by Taizo Ishida and Shuntaro Takeuchi, the fund seeks long-term capital appreciation by investing over 80% of its assets in the common and preferred shares of companies located in Japan. The fund looks for companies that are capable of sustainable growth based on a wide range of fundamental characteristics, including balance sheet information, size and stability of cash flows and financial health.

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As of the quarter-end, the Japan Fund’s $1.39 billion equity portfolio contains 47 stocks, with eight new holdings and a turnover ratio of 15%. Despite this, the fund’s top five trades included selling out of Kyowa Exeo Corp. (TSE:1951) and Shimadzu Corp. (TSE:7701), as well as reducing its position in Shinonogi & Co. Ltd. (TSE:4507) and Sony Corp. (TSE:6758).

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New buy: Hoya

The fund purchased 385,200 shares of Hoya, giving the position 2.65% weight in the equity portfolio. Shares averaged 9,894.56 yen ($93.36) during the second quarter.

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Hoya operates two business segments: Life Care and Information Technology. The former segment supplies medical endoscopes and surgical equipment to support the operation of contact lens retail stores, while the latter segment focuses on electronics products for the semiconductor industry.

GuruFocus ranks Hoya’s financial strength and profitability 9 out of 10 on several positive investing signs, which include a double-digit Altman Z-score, interest coverage and debt ratios outperforming over 86% of global competitors and operating margins that have increased approximately 2% per year on average over the past five years.

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According to the fund’s quarterly letter, Hoya may “benefit from accelerating development of cutting-edge technology” in the extreme ultraviolent light area.

Sold out: Kyowa Exeo

The fund sold 1,889,900 shares of Kyowa Exeo, trimming the equity portfolio 2.66%. Shares averaged 2,511.26 yen ($23.69) during the second quarter.

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Kyowa Exeo provides technological and construction solutions, products and services for various end markets. The company’s profitability ranks 8 out of 10 on the back of a GuruFocus business predictability rank of 4.5 stars, which suggests strong and consistent revenue and earnings growth over the past 10 years. Despite this, Kyowa Exeo’s Piotroski F-score is a low 3 out of 9, while operating margins are expanding over the past five years albeit outperforming just over 51% of global competitors.

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Shimadzu

The fund sold 1,258,200 shares of Shimadzu, trimming the equity portfolio 2.09%. Shares averaged 2,802.56 yen during the second quarter.

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Shimadzu manufactures a wide range of scientific instruments, medical systems, aircraft equipment and industrial machinery. GuruFocus ranks the company’s financial strength 9 out of 10 on several positive investing signs, which include interest coverage and debt ratios outperforming over 90% of global competitors. Despite this, the company’s profitability ranks just 7 out of 10 as three-year revenue and earnings growth rates outperform just over 52% of global competitors, offsetting operating margins that have increased approximately 4.20% per year on average over the past five years.

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Shinonogi

The fund sold 702,800 shares of Shinonogi, knocking off 80.08% of the position and 2.20% of the equity portfolio. Shares averaged 5,986.47 yen during the second quarter.

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GuruFocus ranks the specialty and generic drug manufacturer’s financial strength 9 out of 10 and profitability 8 out of 10 on several positive investing signs, which include a double-digit Altman Z-score, debt ratios that are outperforming over 90% of global competitors and an operating margin that has increased approximately 14.40% per year on average over the past five years.

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Sony

The fund sold 499,200 shares of Sony, trimming the holding 38.18% and the equity portfolio 1.88%. Shares averaged 6974.05 yen ($65.83) during the second quarter.

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GuruFocus ranks the Japanese consumer electronics giant’s financial strength 6 out of 10: Although the company has high interest coverage, Sony has a weak Altman Z-score of 0.94.

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Gurus with large holdings in Sony’s New York Stock Exchange shares (NYSE:SNE) include PRIMECAP Management (Trades, Portfolio), Mario Gabelli (Trades, Portfolio)’s GAMCO Investors Inc. (NYSE:GBL) and Daniel Loeb (Trades, Portfolio).

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Disclosure: No positions.

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About the author:

James Li
I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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