The turmoil at home and abroad in early August that sent Japan’s Topix index down more than 20% exposed the vulnerability of macro-driven strategies. The market has recovered since then and the Invesco OTC & Growth Stock Open that Hattori manages has returned around 3.8% in the past month, outperforming 96% of its peers.
The rally in the TSE Growth Market 250 Index came at a time when the US Federal Reserve’s interest rate-cutting campaign helped support the yen, which in turn underpinned the outperformance of domestic-focused small-cap companies.
Price earning ratio for the TSE Growth Market 250 Index is already hovering at around a historical bottom.
Hattori’s approach focuses on companies with dominant market share in sectors that are relatively immune to economic fluctuations.
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The fund’s top performer in August, BuySell Technologies Co., a retailer of used products, is among those that are less vulnerable to macro conditions and the yen’s volatility. The company buys used products through on-site visits to households.
Other top-performing stocks in the fund through August, grocery store operator Trial Holdings Inc. and computer network company Net One Systems Co., also have limited exposure to external volatility.
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Hattori is hopeful that Japanese retail investors will shift focus to small-caps after the yen’s strength hurt the valuations of their foreign assets.
“With demand and fundamentals improving, small caps will be in a really good phase.”
Chart: Bloomberg
