Hennessy Japan Fund's Top 4th-Quarter Buys

Japan-centered fund releases quarterly portfolio

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James Li
Jan 05, 2021
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Hennessy Japan Fund (Trades, Portfolio), part of California-based Hennessy Advisors Inc. (HNNA, Financial), disclosed this week that its top buys for the fiscal fourth quarter included a position boost in Olympus Corp. (TSE:7733, Financial) and new positions in Z Holdings Corp. (TSE:4689, Financial), Mercari Inc. (TSE:4385, Financial) and Murata Manufacturing Co. Ltd. (TSE:6981, Financial).

Managed by Masakazu Takeda and Yu Shimizu, the fund seeks long-term capital appreciation by investing primarily in equity securities of Japanese companies. The fund managers look for companies with good businesses, high-quality management teams, high financial strength and attractive valuations.

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As of Oct. 31, 2020, Hennessy Japan's $734-million equity portfolio contains 27 stocks with five new holdings and a turnover ratio of 11%. The top three sectors in terms of weight are industrials, consumer cyclical and consumer defensive, with weights of 28.64%, 22.51% and 15.37%, respectively.

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Olympus

Hennessy Japan purchased 571,300 shares of Olympus, increasing the position 177.04% and the equity portfolio 1.49%. Shares averaged 2,096.99 yen ($20.41) during the fourth quarter; the stock is significantly overvalued based on its price-to-GF-Value ratio of 1.8.

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Olympus manufactures and sells precision instruments for the health care industry. GuruFocus ranks the company's financial strength 5 out of 10. Although the company has a strong Altman Z-score of 3.74, debt ratios are underperforming over 69% of global competitors.

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Steven Romick (Trades, Portfolio)'s FPA Crescent Fund also has a holding in Olympus.

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Z Holdings

The fund purchased 3,644,600 shares of Z Holdings, giving the position 3.46% weight in the equity portfolio. Shares averaged 695.03 yen ($6.77) during the fourth quarter; the stock is modestly overvalued based on a price-to-GF-Value ratio of 1.18.

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The company owns the Yahoo Japan portal site, offering e-commerce, online travel and online video services. GuruFocus ranks the company's profitability 9 out of 10 on a 3.5-star business predictability rank and profit margins that outperform over 83% of global competitors.

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Mercari

The fund purchased 500,900 shares of Mercari, giving the position a 2.87% weight in the equity portfolio. Shares averaged 4,974.31 yen ($48.47) during the fourth quarter.

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Mercari operates an e-commerce platform for users to buy and sell fashion, electronic and handmade products. According to GuruFocus, the company's cash-to-debt ratio of 2.33 outperforms over 76% of global competitors despite debt ratios underperforming over 80% of global cyclical retail companies.

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Murata

The fund purchased 106,800 shares of Murata, giving the position a 1.02% weight in the equity portfolio. Shares averaged 6,786.25 yen ($66.25) during the fourth quarter; the stock is significantly overvalued based on its price-to-GF-Value ratio of 1.56.

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Murata produces passive components for electronic devices. GuruFocus ranks the company's financial strength 8 out of 10 on several positive investing signs, which include a strong Altman Z-score of 8.38 and an interest coverage ratio that outperforms over 92% of global competitors.

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Disclosure: No positions.

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