The Matthews Japan Fund (Trades, Portfolio) released its equity portfolio for the second quarter last week.
Part of San Francisco-based investment firm Matthews Asia, the fund is managed by Taizo Ishida and Shuntaro Takeuchi. It invests in Japanese companies that have sustainable growth in order to generate long-term capital appreciation.
In their quarterly letter, the fund managers noted Japanese markets in enjoyed “several tailwinds for the first time in years, including a positive earnings cycle driven by moderate inflation, meaningful wage gains and policy-driven reforms.”
They continued:
“Japan equity markets posted double-digit returns for the first half of 2023, along with other developed markets, outpacing emerging markets. Japanese stocks continued their march higher during the second quarter as government policy and activist pressure pushed undervalued companies to increase their payout and buy-back ratios. Hopes for China reopening waned quickly but the U.S. Federal Reserve’s pace of rate hike slowing down amid inflation rates starting to peak out spurred a general risk-on environment. The Japanese yen traded in a range bound for the first three months of the year but in second quarter, as U.S. 10-year bond yield rose towards 4%, and the Japanese yen weakened towards 145 yen.”
Based on these considerations, the NPORT-P filing shows the fund established 12 new positions during the three months ended June 30, sold out of six stocks and boosted or trimmed a number of other existing investments. Among its largest new buys were Toyota Motor Corp. (TSE:7203, Financial), Mitsubishi Electric Corp. (TSE:6503, Financial) and Toyota Tsusho Corp. (TSE:8015, Financial).
Investors should be aware that, just like 13F reports, NPORT-P reports do not provide a complete picture of a guru’s holdings to the public. Filed by certain mutual funds after each quarter’s end, NPORT-P filings collect a wide variety of information on the fund for the SEC’s reference, but in general, the only information made public is in regard to long equity positions. Unlike 13Fs, they do require some disclosure for long equity positions in foreign stocks. Despite their limitations, even these restricted filings can provide valuable information.
Toyota Motor
The fund invested in 1.17 million shares of Toyota Motor (TSE:7203, Financial), allocating 2.85% of the equity portfolio to the stake. The stock traded for an average price of 1,974.33 yen ($13.86) per share during the quarter.
It previously sold out of the stock in the fourth quarter of 2022.
The Japanese automaker has a market cap of 33.11 trillion yen; its shares closed at 2,444 yen on Monday with a price-earnings ratio of 10.98, a price-book ratio of 1.09 and a price-sales ratio of 0.85.
The GF Value Line suggests the stock is fairly valued currently based on its historical ratios, past financial performance and analysts’ future earnings projections.
At 91 out of 100, the GF Score indicates the company has high outperformance potential. While Toyota received high ratings for growth, profitability, value and momentum, its financial strength rank is more moderate.
Of the gurus invested in Toyota, the iShares MSCI ACWI ex. U.S. ETF has the largest stake with 0.01% of its outstanding shares. The T. Rowe Price Japan Fund (Trades, Portfolio) also owns the stock.
Mitsubishi Electric
The fund picked up 1.18 million shares of Mitsubishi Electric (TSE:6503, Financial), dedicating 2.53% of the equity portfolio to the position. Shares traded for an average price of 1,783.69 yen each during the quarter.
The company headquartered in Tokyo, which manufactures electronics and electrical equipment, has a market cap of 3.96 trillion yen; its shares closed at 1,880 yen on Monday with a price-earnings ratio of 18.56, a price-book ratio of 1.22 and a price-sales ratio of 0.79.
According to the GF Value Line, the stock is modestly overvalued currently.
The GF Score of 80 implies the company is likely to have average performance going forward on the back of high ranks for three of the criteria as well as more moderate growth and value ratings.
The Japan Fund has the largest holding among the gurus with 0.06% of Mitsubishi Electric’s outstanding shares. T. Rowe Price and the iShares exchange-traded fund also have positions.
Toyota Tsusho
Matthews entered a 271,100-share holding in Toyota Tsusho (TSE:8015, Financial), giving it 2.05% space in the equity portfolio. The stock traded for an average per-share price of 6,205.88 yen during the quarter.
The company, which engages in the domestic trade, import and export of various products, including steel, aluminum, electronics, machinery and other related products, has a market cap of 2.92 trillion yen; its shares closed at 8,295 yen on Monday with a price-earnings ratio 10.27, a price-book ratio of 1.52 and a price-sales ratio of 0.30.
Based on the GF Value Line, the stock appears to be significantly overvalued currently.
The GF Score of 80 means the company is likely to have average performance going forward, driven by high ratings for profitability, growth and momentum. The financial strength is more moderate, however, while the value rank is low.
The fund holds 0.08% of Toyota Tsusho’s outstanding shares. The MSCI ACWSI ETF also owns the stock.
Additional trades and portfolio performance
During the quarter, the Japan Fund also entered positions in Credit Saison Co. Ltd. (TSE:8253, Financial), Disco Corp. (TSE:6146, Financial) and KDDI Corp. (TSE:9433, Financial), among several other stocks.
Matthews’ $662 million equity portfolio, which is composed of 56 stocks, is most heavily invested in the technology and industrials sectors.
The fund returned -27.85% in 2022, underperforming the MSCI Japan Index’s -16.31% return.
