Five Japanese Stocks to Buy Following the Bank of Japan’s Policy Overhaul

Recently, the Bank of Japan has launched a new form of monetary easing in its attempt to drive inflation and economic growth: introducing an interest rate target for 10-year government bonds. For the time being, however, the institution wants to keep yields at zero, so it has decided to adjust its buying pace to such a need.

Following such an event, Insider Monkey would like to share a look at some Japanese stocks that the hedge funds in our database like. Even though their positions account for very little portions of the companies’ floats, they can still be interpreted as bullish signals.

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 the details here).

Nippon Telegraph & Telephone Corp (ADR) (NYSE:NTT)

– Number of Hedge Fund Shareholders (as of June 30): 11

– Total Value of Hedge Funds’ Holdings (as of June 30): $224.5 million

– Hedge Funds’ Holdings as Percent of Float (as of June 30): 0.2%

Let’s start with Nippon Telegraph & Telephone Corp (ADR) (NYSE:NTT), which saw 11 fund supporters among those we track  at by the end of the second quarter of 2016. Bulls included Jim Simons’ Renaissance Technologies, which held 2.17 million shares or more than $102 million in stock as of June 30, and Robert B. Gillam’s McKinley Capital Management, with 35,641 shares. In the three days that followed the BoJ announcement, shares of Nippon Telegraph & Telephone Corp (ADR) (NYSE:NTT) gained 3.25%, slightly offsetting third-quarter’s loss to 2.50%. The company has announced recently that it had “successfully created a technique that accurately and speedily predicts the quality of gas products” in collaboration with Mitsui Chemicals, Inc.

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

– Number of Hedge Fund Shareholders (as of June 30): 12

– Total Value of Hedge Funds’ Holdings (as of June 30): $70.3 million

– Hedge Funds’ Holdings as Percent of Float (as of June 30): 0.1%

Among the 12 funds long Mitsubishi UFJ Financial Group Inc (ADR) (NYSE:MTU) as of June 30 was, again, Renaissance Technologies, with 3.27 million shares, or about $14.5 million in stock, and Ken Fisher’s Fisher Asset Management, with 8.5 million shares. Also notable was the position of Mike Masters’ Masters Capital Management, which comprised 1.94 million shares by the end of the second quarter. Mitsubishi UFJ Financial Group Inc (ADR) (NYSE:MTU) spiked right after the BoJ decision, same as several other banking and insurance stocks, but has subsequently retreated, although it ended the third quarter with gains of over 14%. “A steeper yield curve bodes well for insurance companies. Meanwhile, no further negative interest rates is a relief for Japanese banks,” Barron’s Shuli Ren explicated in a blog post.

Sumitomo Mitsui Financial Grp, Inc.(ADR) (NYSE:SMFG)

– Number of Hedge Fund Shareholders (as of June 30): 10

– Total Value of Hedge Funds’ Holdings (as of June 30): $23.4 million

– Hedge Funds’ Holdings as Percent of Float (as of June 30): 0.1%

After a decline of more than 16.6% in the number of funds long the stock, Sumitomo Mitsui Financial Grp, Inc.(ADR) (NYSE:SMFG) saw just 10 shareholders in our database on June 30, including, yet again, Renaissance Technologies, with 1.81 million shares. Others long the stock were Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, with 59,874 shares, and Matthew Tewksbury’s Stevens Capital Management, with 37,134 shares. Sumitomo Mitsui Financial Grp, Inc.(ADR) (NYSE:SMFG)’ stock has advanced by more than 18% since the beginning of July. Last month, the company said it would liquidate its Japan-focused hedge fund as clients fled following poor performance. Over the last four years, the fund’s assets’ value fell by 90%, from $100 million to $10 million.

Toyota Motor Corp (ADR) (NYSE:TM)

– Number of Hedge Fund Shareholders (as of June 30): 13

– Total Value of Hedge Funds’ Holdings (as of June 30): $253.5 million

– Hedge Funds’ Holdings as Percent of Float (as of June 30): 0.2%

Next up is Toyota Motor Corp (ADR) (NYSE:TM), in which the number of funds long the stock went up by one during the second quarter. Among those long the stock were Phill Gross And Robert Atchinson’s Adage Capital Management, which held 1.32 million shares, valued at roughly $132 million by the end of the second quarter, and Russell Hawkins’ Hawkins Capital, with 40,937 shares. Toyota Motor Corp (ADR) (NYSE:TM)’s stock also jumped following by BoJ announcement and gained 16.5% during the third quarter, helped by a 17.8% increase in Europe Toyota car registrations, which took the company’s market share to 4.7%, up from last year’s 4.4%.

Sony Corp (ADR) (NYSE:SNE)

– Number of Hedge Fund Shareholders (as of June 30): 14

– Total Value of Hedge Funds’ Holdings (as of June 30): $281.7 million

– Hedge Funds’ Holdings as Percent of Float (as of June 30): 0.8%

Finally, there’s Sony Corp (ADR) (NYSE:SNE), the most popular Japanese ADR among the firms that we track, even though the number of funds long the stock slid by four during the April-June period. The group of those still long the stock included Spencer M. Waxman’s Shannon River Fund Management, which started a position comprising 430,000 shares over the second quarter, and Mario Gabelli’s GAMCO Investors, which last disclosed ownership of 5.92 million shares as of the end of June. Helped by gains registered after the BoJ announcement, Sony Corp (ADR) (NYSE:SNE)’s stock appreciated by 13% since the beginning of the third quarter. Recently, HBO has announced a deal with the company to bring its streaming service and networks to Sony’s PlayStation consoles.

Disclosure: Javier Hasse holds no interest in any of the securities or entities mentioned above.