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Norinchukin Bank’s stock fund is investing in robots and railways as it searches for value in Japanese equities.
Robot maker Fanuc Corp. and East Japan Railway Co. are among the few companies that can buck Japan’s grim demographic outlook, said Kazushige Okuno, chief investment officer at Norinchukin Value Investments Co., which advises the bank’s equity fund. He said the fund added to its stake in Fanuc during the stock market turmoil that began in August, taking advantage of the company’s share price drop.
“I think we can take a Warren Buffett-like approach to investing in Japan,” said Okuno, who advises the 183 billion yen ($1.5 billion) fund for 24 investors including Norinchukin, the nation’s biggest agricultural bank. “We focus on stocks that have structural advantages in terms of market share, technologies and competitiveness.”
The firm known as NVIC currently advises on investment in 21 companies in Japan, including Shin-Etsu Chemical Co., and 25 in the U.S. and aims to outperform the Topix by 7 to 10 percentage points a year, Okuno said. It achieved an average annual return of 22 percent from February 2009 to August 2015, beating benchmark Topix index’s 13 percent average advance, according to NVIC data.
NVIC targets investment of around 10 billion yen in each stock Okuno sees as a candidate for long-term holdings. “The only downfall is that there aren’t very many of them,” he said in an interview in Tokyo, without naming other holdings of Japanese equities. Because of this, Okuno will close the fund to new investment when it reaches 250 billion yen, he said.
The Topix dropped as much as 19 percent from an eight-year high in August, when China’s currency devaluation triggered a worldwide rout. The gauge fell 1 percent Tuesday, paring this year’s gain to 9.6 percent.
Okuno said he began investing in Fanuc in 2008, years before Third Point LLC, the hedge-fund firm run by Daniel Loeb, said it took a stake in the Yamanashi-based firm in February. “Fanuc is the winner in terms of technology and competitiveness, and we see it growing further as industry in Asia rushes to mechanize,” said Okuno.
Shares of Fanuc have doubled since January 2008. The company raised its net income forecast for the year ending March by 1.9 percent to 162.5 billion yen on Tuesday.
East Japan Railway meets Okuno’s standards because it operates the Yamanote rail line in Tokyo that loops around the most prime retail land in the country, he said. East Japan Rail has doubled since the end of 2012.
“Japan’s population might be in decline overall, but greater Tokyo alone is a growing region of 35 million,” he said. “No other company has actually been allowed full ownership of property that good.”
NVIC became a unit of Norinchukin Bank in January. It was originally established within the bank in 2007 and began accepting investments from outside Norinchukin in 2009.
Okuno said he also invests in U.S. firms such as United Technologies Corp., the maker of aircraft engines and Otis-brand elevators, because they have the “structural advantages” he seeks. “People’s lives are on the line in the elevator business,” said Okuno. “Once you’ve got the track record, you’ve already beaten any potential newcomers.”