Masakazu Takeda, CFA, CMA, Portfolio Manager for SPARX Asset Management
Mr. Takeda highlights his top portfolio picks Hitachi, Sony, Mitsubishi, Tokio Marine, and Keyence in this 2,332 word interview exclusively found in the Wall Street Transcript.
Masakazu Takeda, CFA, CMA, is a Portfolio Manager for SPARX Asset Management Co., Ltd., subadviser to the Hennessy Japan Fund, and he has managed the fund since 2006.
Prior to joining SPARX in 1999, Mr. Takeda was employed by the Long Term Credit Bank of Japan — currently Shinsei Bank — and LTCB Warburg, now UBS Securities.
Mr. Takeda received a B.S. in liberal arts from International Christian University, and he is a CFA charterholder and a chartered member of the Security Analysts Association of Japan.
“We strive to invest in high-quality Japanese companies with a global footprint.
Through our fund, the investor can get exposure not just to the Japanese economy, but also the global economy around the world, whether it’s Asia, Europe or the U.S.
They can get exposure to the global economy through high-quality management teams, high-quality companies with lots of liquidity, with big market caps and with better transparency in terms of accounting.
So I think the Hennessy Japan Fund is an interesting way to get exposure to the global economy over time.
And as I said, they are some of the most well-run companies in Japan with top market share in their respective fields.
We try to focus on just a few key ideas, only 25 to 30 names, and we run a low turnover strategy. We just look for great capital compounders and just let the businesses create wealth for the fund holders.”
Mr. Takeda considers Hitachi to be a valuable “growth stock”:
“Hitachi is one of the largest industrial manufacturing conglomerates and it’s over a century old.
They make everything from industrial equipment to heavy machinery, home appliances, consumer electronics, diagnostics, IT services, railway, social infrastructure, management services, etc.
Up until 2008, Hitachi was actually a badly run company.
After 2008, after the financial crisis, they got their act together and they went through a lot of restructuring.
It became an average-quality company. That was around the mid-2010s.
We just watched the company from the sidelines during that time.
Since around 2016, we noticed that the company was undergoing a transition from being just a pure manufacturing-centric business model to a more asset-light, consulting-based business model.
Now, Hitachi can not only sell hardware to industrial customers, but also sell software services, maintenance, aftersales, operational outsourcing, monitoring services, and so on.
So they can sell this as a package. In a nutshell, Hitachi is now turning into a more software-based, asset-light scalable company.
Despite their core operational history up until 2008, the stock is only trading at 10 times p/e. But we expect the company to grow at 10%-plus for the next three to five years.
So that’s what I mean by “growth in disguise.”
Because of the misperception by the market, even though their expected growth rate is in the low-teens, the stock is trading like a value stock and its return on equity is already 15% after years of restructuring.
We like the quality of the company as it stands today.”
Mr. Takeda considers Mitsubishi to be a similar investment option as Hitachi.
“Mitsubishi Corporation (OTCMKTS:MSBHF) is actually classified under the wholesale sector.
The essence of the business is actually an investment business.
So, Mitsubishi Corporation, they use their own balance sheet to invest in various operating assets around the world, as well as investment securities around the world.
So their balance sheet — it’s a collection of unique assets.
The way to value the business, you should look at the growth rate or per-share net asset value.
And over the last five, 10 and 15 years, they’ve been consistently growing their per-share net asset value.
We look at per-share book value as a proxy for net asset value at high single digit to 10%. And so, we think Mitsubishi Corporation is a growth company.
Yet, the stock is trading at a high-single-digit multiple and just barely one time book with a dividend yield of 4%.
I think the misperception comes from the fact that the bulk of the revenue is generated in commodity businesses — coking coal business, as well as oil and hard commodities.
So the stock is valued just like any oil company out there.
But the fact of the matter is Mitsubishi Corporation is an investment company.
So there are multiple revenue sources and we like its long-term growth track record. And again, moving forward, they have ample investment opportunities globally.
The reason why Mitsubishi Corporation is so unique is because in the old days, post-World War II, the economic recovery period, trading companies played a key role by assisting Japanese companies in import and export operations.
It used to be a commission-based business.
However, around the 1980s and 1990s, a lot of Japanese companies started to build up their export channel.
Companies like Mitsubishi shifted their business model to more of an investment type of business.
That’s how they shifted over the years. We like their investment capabilities.
It’s a business, too, owned by Berkshire Hathaway (NYSE:BRK.A).
Warren Buffett invested in this company in 2019 and 2020.
We’ve been invested in this a lot longer than Berkshire Hathaway.”
The portfolio manager likes his current stock positions:
“Right now, obviously, the market conditions are very challenging.
But given the concentrated nature of our portfolio, our active share is well over 80%.
So, from time to time, our fund behaves very differently from the market, which we cherish.
Our goal is to outperform the index and also produce absolute returns on a mid- to long-term basis at a minimum three to five years on a rolling basis, if not longer.
And based on that, we like our portfolio today.
There are a lot of companies with manufacturing excellence, as well as businesses with strengthening intangible assets, businesses that are trading at value stock-like multiples.
Growth prospects are just as bright as pure growth businesses and the underlying companies in our portfolio, they are very different from each other.
So we consider our portfolio concentrated and diversified, and with that I think we can over time comfortably outperform the index.
Now is a time to be patient.
But for anyone interested in investing in the fund, I think the valuation of the portfolio is becoming increasingly attractive.”
Get more detail on his top picks of Hitachi and Mitsubishi, as well as the reasoning behind the Sony, Tokio Marine and Keyence picks, only in the Wall Street Transcript.
Masa Takeda, Portfolio Manager, SPARX Asset Management Co., Ltd.
www.hennessyfunds.com
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