Near Flawless Stock Picks: Smart Moves for HJPNX in 2016



Performance evaluation of HJPNX

The Hennessy Japan Fund – Investor Class (HJPNX) rose 2.9% in the first four months of 2016. It was the best performance among the nine funds in this review. In the past one year, the fund has risen 3.6%, which made it the best performer. From the end of December 2015 until May 10, 2016, the fund has risen 6.6%. Below, we’ve graphed its performance against two ETFs: the iShares MSCI Japan ETF (EWJ) and the iShares Currency Hedged MSCI Japan ETF (HEWJ).

Let’s look at what has contributed to the fund’s stellar performance in the first trimester of 2016.

Portfolio composition and contribution to returns

The industrials sector was the star performer, which helped HJPNX post a stellar performance in the first four months of 2016. Daikin Industries powered the sector ahead, with Mitsubishi (MSBHY) and Nidec (NJ) playing important supporting roles.

Healthcare and consumer staples were second and third, respectively, in terms of positive contribution to returns. Healthcare barely edged out staples for the second spot. Terumo singlehandedly provided all the positive contribution. The only other holding from the sector, Rohto Pharmaceutical, contributed negatively for the period. Meanwhile, all holdings from the staples sector emerged as positive contributors.

Financials dragged on the fund as both holdings—Sumitomo Mitsui Financial Group (SMFG) and Mizuho Financial Group (MFG)—contributed negatively.

Investor takeaways

Passively managed EWJ was no match for HJPNX in the first trimester of 2016. Except for the telecom services sector, there was no other sector in which EWJ could match HJPNX. In the telecom sector, actively managed HJPNX marginally underperformed the stock comprising EWJ (DCM). For instance, stocks from the consumer discretionary sector comprising EWJ (FUJHY) (MZDAF) contributed negatively to the fund. Those forming HJPNX contributed positively. Stocks such as Japan Tobacco (JAPAF) helped the consumer staples sector forming EWJ to contribute positively. They couldn’t match the quantum contributed by stocks comprising HJPNX.

The fund’s turnover is on the lower side. The fund’s managers seem to have the ability to pick superior stocks, given its performance. The only aspect that moderate investors may find discomforting is its concentration. Meanwhile, aggressive investors are putting this fund on their shortlist of funds for Japanese equity exposure.

In the next article, let’s take a look at the Voya Japan TOPIX Index Portfolio – Class A (IJIAX).

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