(Bloomberg) -- Japan’s recent stock market turmoil is not deterring Sparx Asset Management portfolio manager Masakazu Takeda from holding on to investments in large Japanese firms that have global strategies effective in countering volatility.
Takeda sees the appeal of companies such as financial services provider Orix Corp. and retailer Seven & i Holdings Co. in his $5.1 billion portfolio, including the flagship Sparx Japan Fund, which has returned 16.4% this year and outperformed 92% of peers, according to data compiled by Bloomberg.
“I have never said Japan is a great economy,” said Takeda, due to the country’s diminishing economy and declining population. “That’s why you have to go for companies that are global and that can grow regardless of what happens to the economy at the end of the day.
Takeda’s bottom-up approach gives him an edge at a time when economic fears are triggering high levels of market volatility. After the Bank of Japan raised its benchmark rate last week, Japanese equity markets plunged Monday as investors unwind yen carry trades, and as concerns grow over the US economy and the impact of a stronger yen on corporate earnings.
Two years ago, Takeda invested in insurers MS&AD Insurance Group Holdings Inc., Tokio Marine Holdings Inc. and Sompo Holdings Inc. for their high market-share concentration, rich asset balance sheets and potential to expand globally.
“Nowhere in the world do you have this kind of industry concentration,” said Takeda, who trimmed his holdings in insurance stocks before the market selloff to take profit. “I consider that as a very attractive proposition.”
Despite the recent trouncing of Japanese financial shares, Takeda says Orix stands out for a number of reasons. Its airplane leasing business is profitable, while assets such as Kansai international Airport and hotels makes it a beneficiary of the strong inbound tourism trend. Orix’s strong discipline around return on equity also appeals.
“They have all these hidden gems,” he said of Orix.
Meanwhile, Takeda likes Seven & i for its recession-resistant nature, higher capital retention and free-cash-flow generation. The company has the high convenience-store market share in Japan and the US, after acquiring gas-station business Speedway in 2020. However, its shares dropped 8% this year following weak sales in the two countries.
“People hate it because near-term earnings don’t look that strong,” Takeda said, but added that a cheap valuation make the stock attractive. “I’m still bullish and going against the crowd.”
Takeda says he is becoming more optimistic on Japan as the nation exits three decades of deflation and begins to normalize monetary policy. “In the last 20 years, we had a central bank that was not acting in the best interest of businesses,” he said, “Now we have a reform-minded, pro-growth, pro-inflation government, and the central bank.”
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