Most Popular Japanese ADRs Among Hedge Funds

While the Chinese stock market has been constantly in the limelight for slumping hard in the past few quarters, Japanese equities, which have also declined significantly during that period,  haven’t received as much attention. The Nikkei 225 has depreciated by nearly 20% in the last 12 months and currently trades down by 13% year-to-date. Though the Japanese government has taken numerous measures, including quantitative easing to boost the economy, recent data from the country suggests that all those efforts have largely gone in vain. In July, the Nikkei Japan Manufacturing PMI inched up to 49 from 48.1 in June, but still represents a contraction in activity. Despite the rough weather faced by the economy, there were several US-traded stocks of Japanese companies that were popular among hedge funds covered by us at the end of first quarter.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

#5 Honda Motor Co Ltd (ADR)(NYSE:HMC)

– Investors with long positions (as of March 31):

10

– Aggregate value of investors’ holdings (as of March 31): $107.26 million

Honda Motor Co Ltd (ADR)(NYSE:HMC)’s stock has been on a consistent decline since the start of 2014. However, during the first quarter the company saw a big jump in its popularity among hedge funds with its ownership among funds covered by us doubling and the aggregate value of their holdings in it increasing by 36.7%. Funds that initiated a stake in the company during that period included billionaire David E. Shaw‘s firm, D.E. Shaw & C, which purchased 391,624 shares of the company. In June, Honda managed to increase the number of car sales by 3.2% on the year, with 138,715 Honda and Acura models sold, while year-to-date, US sales went up by 5.2% to 792,355 units. However, the stock has slid by over 15% since the beginning of the year.

#4 Canon Inc (ADR) (NYSE:CAJ)

– Investors with long positions (as of March 31): 11

– Aggregate value of investors’ holdings (as of March 31): $43.66 million

The number of funds covered by us long Canon Inc (ADR) (NYSE:CAJ) more than doubled in the first quarter, but the aggregate value of their holdings in the company during the same period declined by over 13%. Some of that decline in the aggregate value of holdings can be attributed to Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, which was the second largest shareholder of Canon Inc (ADR) (NYSE:CAJ) at the end of 2015 among funds covered by us, but the fund sold its entire stake during the January-March period. Though Canon’s stock has lost only 6% of its value this year, it is down by over 40% from the levels it traded at the beginning of 2011. In March, the company announced that it has agreed to purchase Toshiba’s medical equipment unit for $5.9 billion and at the end of June, Japan regulators gave the green light for the deal to go through.

#3 Mitsubishi UFJ Financial Group Inc (ADR) (NYSE:MTU)

– Investors with long positions (as of March 31): 12

– Aggregate value of investors’ holdings (as of March 31): $78.81 million

Moving on, the ownership of Mitsubishi UFJ Financial Group Inc (ADR) (NYSE:MTU) among funds tracked by us inched up by two, but the aggregate value of their holdings in it fell by almost $20 million during the first quarter. Funds that upped their stake in the company during that time included billionaire Ken Fisher‘s Fisher Asset Management, which brought its holding up by 21% to 7.76 million shares and the fund further raised its stake by 10% to 8.50 million shares during the second quarter. The bank holding company came out with better-than-expected results for the last reported quarter, but the stock is still trading 18% in the red year-to-date. A lot of analysts think that trading at a trailing price-to-earnings multiple of only 7.17 and an excessively low price-to-book ratio of 0.49, shares of the bank holding company are severely undervalued at present levels and can represent a good risk-reward opportunity for value investors.

#2 Toyota Motor Corp (ADR) (NYSE:TM)

– Investors with long positions (as of March 31): 12

– Aggregate value of investors’ holdings (as of March 31): $269.37 million

Though the number of hedge funds tracked by us long Toyota Motor Corp (ADR)(NYSE:TM) came down by one and shares of the car maker dropped 13.6% during the first quarter, the aggregate value of hedge funds’ holdings in the company went up during that period, by 16.88%. Notable investors that reduced their stake in Toyota Motor Corp (ADR) (NYSE:TM) during the first quarter included  Jim Chanos‘ Kynikos, which cut its holding by 9% to 42,022 shares. Shares of the automobile giant made their lifetime high above the $140 mark in March last year, but have been on a gradual decline ever since and are currently trading down by more than 9% year-to-date. The company’s US sales in June slid by 5.6% on the year to 198,257 units, with both Toyota and Lexus divisions registering declines of -6.2% and -5.1%. However, Toyota’s car registrations in Europe advanced by 6.7% to 59,000 units in June.

#1 Sony Corp (ADR) (NYSE:SNE)

– Investors with long positions (as of March 31): 18

– Aggregate value of investors’ holdings (as of March 31): $279.52 million

Sony Corp (ADR)(NYSE:SNE) is the only stock in this list that is trading in the green for 2016, up by 36% year-to-date. It continued to remain the most popular Japanese stock among the investors in our database at the end of the first quarter, despite its ownership among funds covered by us inching down by two and the aggregate value of their holdings falling by $63 million. . Billionaire Mario Gabelli‘s GAMCO Investors lowered its stake in the company marginally by 3% to 5.86 million shares during the first quarter. The company has recently reported its financial results for the first fiscal quarter, posting EPS of JPY 16.44 ($0.16), down by 76.6% on the year, while its net sales slid by 9.3% on the year to JPY 1,362.5 billion ($13.2 billion). The decline in earnings was mainly attributed to chargers related to Sony’s semiconductors segment after the Kumamoto earthquakes, as well as by currency headwinds.

Disclosure: None