Uncovering Hidden Opportunities In JapanAdvisor Perspectives
Masakazu (“Masa”) Takeda is a portfolio manager for Tokyo-based SPARX Asset Management Co., Ltd., sub-advisor to the Hennessy Japan Fund, and he has managed the Fund since 2006. Prior to joining SPARX in 1999, Masa was employed by the Long Term Credit Bank of Japan (currently Shinsei Bank) and LTCB Warburg (now UBS Securities). Masa received a BS in Liberal Arts from International Christian University, and he is a CFA charterholder and a chartered member of the Security Analysts Association of Japan.
I spoke with Masa on April 26, 2019.
Tell me a little bit about your background and your role in managing the fund.
I have been with SPARX for 20 years, having I joined the firm in 1999. Prior to joining SPARX, I worked at a Japanese bank for three years. I graduated from university in 1996. When I joined SPARX, I didn’t know anything about equity research, let alone investments, so I started from the beginning. SPARX is a bottom-up, fundamental stock-picking company, and I spent my first few years at SPARX visiting companies to understand how the corporate world works.
I quickly realized that there was, in terms of an investment approach, no role model that I aspired to in Japan. So I tried to learn from the U.S., from the likes of Warren Buffett and people who follow his principles. It resonated with my investment approach and way of thinking. When I became an active manager in 2003, I tried his approach of looking at investing in stocks as being a fractional owner of a business. I focused on the long-term economic characteristics of the business rather than short-term earnings trends or trading pieces of paper. That approach has worked quite well.
I became the senior portfolio manager of the Hennessy Japan Fund in 2006. I’ve been in charge of the Fund for over 10 years, now.
What is the mandate of the Hennessy Japan Fund?
The mandate of the Fund is to generate above-average returns for shareholders through an active strategy. My approach is to invest in stocks of great companies at prices below the intrinsic values of those companies. We don’t focus on re-rating or relative valuation or anything of that sort. We are true bottom-up stock pickers, focusing on owning great companies.
Since its inception on October 31, 2003 through 3/31/19, the Fund (HJPIX) has had an annualized return of 9.39% and that’s 473 basis points better than the TOPIX benchmark, which returned 4.66%. To what do you attribute that outperformance?
It is predominantly stock selection. I’m a big believer in capital compounders, whereby you invest in great companies that have the ability to compound their capital, quickly. The average return on equity for the portfolio is around 12% and that’s about 200 basis points higher than the average Japanese company. As those companies retain their earnings and reinvest for future growth, earnings also grow around the same rate, high single digits to 10%. That should translate into increasing intrinsic value, which in turn should lead to an increase in share price. That has been the main driver of the Fund’s outperformance.
Read the full article here by Robert Huebscher, Advisor Perspectives