[Fund-Analysis] The Top 10 Stocks Held by Japan's Biggest Value Fund

Good investors copy, great investors steal...

One of the world’s richest men and greatest investors, Mohnish Pabrai, once said:

“We love original ideas. But truly, there are already plenty of good ones out there, ours for the taking. If I were too proud to copy the ideas of others, I likely wouldn't have even a fraction of my current success.”

With those words of wisdom as an inspiration, I have decided to present the top 10 stocks Japan’s biggest value-stock fund invests in:

The Daiwa-Sumigin Japan Value Stock Fund

The Daiwa-Sumigin Japan Value Stock Fund’s main investment targets are domestic stocks identified as undervalued based on research and analysis of individual companies by fund managers, in-house analysts, and other organizations.

The fund’s main points are:

• Find stocks that are judged to be cheap by various investment indicators from Japanese stocks, medium- to long-term. After screening stocks, they are individually analyzed by their fundamentals.

• Allocate the fund’s assets by analyzing macroeconomic and industrial trends on the Japanese market.

• Due to the fund’s size, focus on Japanese large- to medium cap companies.

• Fund management fee: 1.672%/yearly

The fund presently holds 97 companies and is currently manages 10,6 billion JPY.

Here are the 10 top holdings of the Daiwa-Sumigin Japan Value Stock Fund:

For each company’s numbers, download the Excel sheet here:

1. Mitsubishi UFJ Financial Group: 5.64% (Banking)

2. Toyota Motor: 5.11% (Automobiles)

3. Toyota Industries: 4.59% (conveying machine)

4. Nippon Telegraph and Telephone: 4.40% (Information technology)

5. Sony Group: 4.24% (Electrical equipment) - Will have a stock analysis out soon

6. Daiichi Life Holdings: 4.15% (Insurance)

7. Mitsui OSK Lines Ltd: 2.93% (Maritime)

8. Marubeni: 2.89% (Trading company)

9. ITOCHU Corporation: 2.46% (Trading company) - my value-analysis of the company here

10. Hitachi, Ltd. 2.34% (Electrical equipment)

My verdict of the fund

First of all, this fund closely mimics the main companies on the Tokyo Stock Exchange. In fact, 4 of the top 10 companies on the TSE are in the Daiwa-Sumigin Japan Value Stock Fund:

The 10 largest companies on the Tokyo Stock Exchange

I guess this is a testament to just how many value oriented companies the Tokyo Stock exchange has. However, this also means that it might be more attractive to just buy a Japanese index fund instead, with a fee of around 0.2% instead of Daiwa-Sumigin’s 1.672%.

Most interesting stocks in the fund

People who have been following Konichi-Value know I screen companies based on my tried and true Value Vetting Strategy. This strategy have the following parameters:

• A P/E less higher than 6 but lower than 25

• An average Earnings Growth higher than 7% over the past 7 years

• Return on Equity at at least 10%

• A dividend yield higher than 0.5%

• Net debt/Earnings Before interest, Taxes and Depreciation lower than 2

Only two companies in the fund manage to fit all criteria in my screener:

Itochu Corporation & Sony Corporation

I have written a long analysis on the trading company Itochu here. In summary, I think it is a greatly undervalued company that should be on value investors’ radar.

In regards to Sony, I have not yet done an analysis on the company, but if you are interested in the stock, I wholeheartedly recommend you to read Asia Century Stocks analysis on the company here.