Japan Prime Minister Shinzo Abe’s fiscal monetary stimulus begun in 2012 has resulted in 4.2% cumulative growth over the past six quarters ended March 31, 2014. Portfolio managers at Hennessy’s Japan Small Cap Fund believe Abe’s longer-term structural reforms, introduced in June, will “create a more business-friendly environment,” they wrote in their quarterly commentary. Abe’s plan aims to increase private investment by lowering the corporate tax rate below 30% and easing business regulations.
“The market should also welcome these reforms, however, patience will be required, as they are multi-year initiatives,” the managers wrote. “It may be difficult to evaluate the effectiveness of the third arrow over the short term, yet the government’s commitment to economic growth appears strong.”
For their fiscal third quarter, the Hennessy Japan Small Cap Fund (Trades, Portfolio) chose 13 new stocks. With the new additions, the portfolio contained 62 stocks in total, valued at $19 million. Its top sectors represented are a 35.7% weighting in Industrial, 22.2% weighting in Technology and 22.1% weighting in consumer cyclical.
The fund’s top new buys are: Kinugawa Rubber Industrial Co. Ltd. (TSE:5196, Financial), Komehyo Co. Ltd. (TSE:2780, Financial), Daiichi Jitsugyo Co. Ltd. (TSE:8059, Financial), Ube Industries Ltd. (TSE:4208, Financial) and Shinagawa Refractories Co. Ltd. (TSE:5351, Financial).
Kinugawa Rubber Industrial Co. Ltd. (TSE:5196, Financial)
Hennessy purchased 78,000 shares of Kinugawa Rubber Industrial in the third quarter. The holding represents 2.2% of their portfolio, and the stock’s price averaged 502 yen per share for the quarter.
Kinugawa Rubber Industrial Co. Ltd. is a specialized manufacturer of automotive rubber and synthetic resin parts for the global automotive industry. Kinugawa Rubber Industrial Co. Ltd. has a market cap of $31.93 billion; its shares were traded at around 466.00 yen with a P/E ratio of 7.60 and P/S ratio of 0.43. The dividend yield of Kinugawa Rubber Industrial Co. Ltd. stocks is 1.68%. Kinugawa Rubber Industrial Co. Ltd. had an annual average earnings growth of 6.60% over the past five years.
Komehyo Co. Ltd. (TSE:2780, Financial)
Hennessy purchased 24,200 shares of Komehyo, making it 2% of their portfolio. The stock’s price averaged 1,723 yen for the quarter.
Komehyo Co. Ltd. engages in the operation of retail stores. Komehyo Co. Ltd. has a market cap of $21.49 billion; its shares were traded at around 1,965.00 yen with a P/E ratio of 13.90 and P/S ratio of 0.54. The dividend yield of Komehyo Co. Ltd. stocks is 1.18%. Komehyo Co. Ltd. had an annual average earnings growth of 35.10% over the past five years.
Daiichi Jitsugyo Co. Ltd. (TSE:8059, Financial)
Hennessy purchased 71,000 shares of Daiichi Jitsugyo, making it 2% of their portfolio. The stock’s price averaged 579 yen for the quarter.
Daiichi Jitsugyo Co. Ltd. trades machinery. The company also trades materials such as pipes, construction, plastics, fasteners and chemicals. Daiichi Jitsugyo Co. Ltd. has a market cap of $32.65 billion; its shares were traded at around 614.00 yen with a P/E ratio of 13.10 and P/S ratio of 0.25. The dividend yield of Daiichi Jitsugyo Co. Ltd. stocks is 2.07%. Daiichi Jitsugyo Co. Ltd. had an annual average earnings growth of 26.70% over the past five years.
Ube Industries Ltd. (TSE:4208, Financial)
Hennessy purchased 213,000 shares of Ube Industries in the quarter, making it 1.9% of the portfolio. The stock’s price averaged 175 yen for the quarter.
Ube Industries Ltd. is a Japan-based company which manufactures and sells caprolactam, nylon, industrial chemicals, synthetic rubber, ammonia, sulfur, nylon resin and synthetic resin products, among others. Ube Industries Ltd. has a market cap of $186.18 billion; its shares were traded at around 175.00 yen with a P/E ratio of 15.70 and P/S ratio of 0.29. The dividend yield of Ube Industries Ltd. stocks is 2.26%.
Shinagawa Refractories Co. Ltd. (TSE:5351, Financial)
Hennessy purchased 156,000 shares of Shinagawa Refractories Co. Ltd., making it 1.9% of the portfolio. The stock’s price averaged 263 yen for the quarter.
Shingawa Refractories Co. Ltd. produces refractories mainly for steelmakers. Shinagawa Refractories Co. Ltd. has a market cap of $28.1 billion; its shares were traded at around 292.00 yen with a P/E ratio of 10.60 and P/S ratio of 0.29. The dividend yield of Shinagawa Refractories Co. Ltd. stocks is 1.34%. Shinagawa Refractories Co. Ltd. had an annual average earnings growth of 1.60% over the past five years.
For more stocks of the Hennessy Japan Small Cap Fund (Trades, Portfolio), visit the portfolio here. Not a Premium Member of GuruFocus? Try it free for 7 days here.
