Portfolio Moves of CNJFX in 2016: Do They Matter?



CNJFX: An overview

The Commonwealth Japan Fund (CNJFX) aims “to provide long-term appreciation and current income. The Fund invests primarily in equity securities including common stock, preferred stock and securities convertible into common stock. The Fund may hold the securities of Japanese issuers and debt securities denominated in Yen.”

Its focuses on bottom-up stock selection with a long-term view. Bottom-up stock selection means that fund managers look at individual stocks more closely than the industry to which they belong. The underlying belief is that good companies outperform even if the industry they belong to is witnessing difficult times.

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The fund has a small portfolio with only 47 holdings as of March 2016. It was managing assets worth $5 million at the end of April 2016. As of the December portfolio, its equity holdings included Fanuc (FANUY), Toyota Motor (TM), and Mizuho Financial Group (MFG), which formed a combined 4.4% of the fund’s portfolio. It was also invested in the iShares MSCI Japan ETF (EWJ) at that time.

Portfolio changes in CNJFX

Industrials, healthcare, and financials form the core of CNJFX. The three combined form about two-thirds of the portfolio. By itself, industrials makes up 35% of the assets. Both consumer-focused sectors—discretionary and staples—form a tenth each of the assets. The fund isn’t invested in the energy and telecom services sectors.

Exposure to industrials has increased compared to April 2015. Intra-period, it fell to less than a third of the assets. But that was due to small changes in allocation to certain stocks and market movement. Fund managers have neither added to nor liquidated securities from the portfolio.

Among the consumer-focused sectors, fund managers have increased allocation to staples while reducing allocation to discretionary. This has happened over the course of the 12-month period until April 2016. They have let go of one stock from the discretionary sector while maintaining the stock-level composition of staples.

Fund managers have stepped up defensive bets in the past one year. Exposure to financials has decreased, while exposure to healthcare stocks has increased sharply. There have been no new stock-level additions to the healthcare sector. Exposure to existing stocks has increased.

One thing worth mentioning is that the portfolio turnover of the fund is very low. Fund managers have stuck with most of their stock picks.

How has this portfolio composition fared in the first four months of 2016? Let’s see in the next article.


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