Photographer: Akio Kon/Bloomberg

This Struggling Hedge Fund Hopes Trump Will Revive Its Fortunes

  • Keyence, Okuma, and Fanuc to benefit from U.S. spending: Asuka
  • Asuka expects the Topix to rise 15 percent this year

Toshihiro Hirao, whose Japan hedge fund posted its biggest decline ever last year, sees relief ahead as he expects President Donald Trump’s policies to boost Japanese equities by the most in three years.

Hirao, 52, who runs the Asuka Japanese Equity Long Short Strategy in Tokyo, is predicting that Trump’s pro-business agenda will help strengthen the dollar, stoking a 15 percent increase in the Topix index this year. Despite a tumultuous start, the U.S. president will soon turn to his plan of tax cuts and infrastructure spending, Hirao said. That will help Japanese industrial machinery and automation companies as well as those with U.S. businesses, which are also benefiting from a weaker yen, he said.

Hirao, chief investment officer of the $220 million Asuka Asset Management Co., is investing in Okuma Corp., Keyence Corp., SMC Corp. and Fanuc Corp., manufacturing and factory automation stocks that he says are poised to benefit from increased U.S. infrastructure spending. Shin-Etsu Chemical Co., a producer of synthetic resins, and steel manufacturer Yamato Kogyo Co., stand to gain from a weaker Japanese currency, Hirao said.

“Trump will eventually adjust himself. I am rather optimistic,” said Hirao. “What we are likely to see as results will be tax cuts, infrastructure investment and job creation. The U.S. economy is doing very well at the moment. We will see a further improvement.”

Hirao’s optimism about Trump puts him at odds with hedge fund giants George Soros, who said in January that the stock market rally will come to a halt, and Ray Dalio, who is concerned the damaging effects of Trump’s protectionist policies may overwhelm the benefits of his business-friendly agenda. So far, Hirao’s belief appears well-placed -- U.S. stocks have hit record highs the past month as the Topix has advanced to the highest levels in more than a year. The dollar has strengthened 7 percent against the yen since Trump’s election in November.

Trump in his first address to a joint session of Congress on Tuesday said he would ask for $1 trillion in infrastructure spending to replace new roads, bridges, tunnels, airports and railways. His speech also included a reference to a plan that would overhaul corporate and individual taxes, although he didn’t provide details.

Hirao’s Asuka Japanese Equity Long Short Strategy had an 8 percent annualized return on average over the past five years. The fund fell 6.2 percent last year as central bank purchases and unpredictable political events such as Brexit hurt long and short positions in the portfolio. Declines in 2016 exceeded the 0.7 percent loss in 2008, when the global financial crisis sent stocks worldwide plunging.

The Topix fell 1.9 percent last year, with a measure of volatility reaching the highest level since 2008. Japanese hedge funds as a group rose 0.7 percent last year, according to Eurekahedge, their worst year since 2011. The Topix surged 15 percent in the last three months of 2016, the biggest quarterly gain since the beginning of 2013.

Unlike last year when events like Brexit and Trump’s win sent the Japanese stocks on a wild ride, Hirao expects the market be more stable this year. In addition to machinery, he likes companies with large revenue exposures to the U.S. such as Mitsubishi UFJ Financial Group Inc. and SoftBank Group Corp.

So far this year, Hirao’s stock picks are off to a good start. SMC surged 16 percent through March 1, while Okuma and Keyence each gained about 10 percent.

Okuma surged 3.7 percent as of 9:40 a.m. in Tokyo to the highest intraday level in 19 months, while Shin-Etsu rose as much as 1.9 percent. Shares of SMC, Fanuc, and Yamato Kogyo rose to the highest intraday level in more than a week.

Hirao, together with Mamoru Taniya, formed Asuka in 2002 as a result of a management buyout of Tudor Capital Japan Ltd. Before Tudor, Hirao was a managing director at Salomon Smith Barney’s Japan unit.

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