Photographer: Noriko Hayashi/Bloomberg

Old-School Stocks Lifted Returns at This Japanese Hedge Fund

  • Akamatsu Fund is on track to post highest return since 2013
  • Small-cap stocks boosted returns at some Japan hedge funds

Akamatsu Fund, a $60 million Japan-focused hedge fund, is on track for its best returns in four years as bets on small-cap manufacturing stocks started to bear fruit.

The long-short fund rose 2.2 percent in July, bringing its returns for the first seven months of the year to 12 percent, according to the fund’s monthly report to investors. The fund, which invests in stocks excluding Japan’s biggest 250 companies, rose as picks including Wavelock Holdings Co., a plastic manufacturer, and condom maker Sagami Rubber Industries Co. helped lift returns.

Japanese hedge funds are rebounding in 2017 from their worst performance in five years, with some managers posting outsize gains thanks to a focus on small-cap stocks. Gauges tracking small-company shares handily beating the broader Topix Index this year and trading volume for the Topix’s Second Section of medium-sized stocks rose to a record high yesterday, while trading volume for the Jasdaq Index peaked in July.

Smaller Is Better for These Japan Hedge Funds Beating the Topix

Akamatsu Fund was launched in 2005 by Bill Gallagher, former head of Japanese equity research at the firm formerly known as Credit Suisse First Boston, and Philip Kay, global head of Japanese cash equities at the same firm. It has seen its share of ups and downs, with the fund’s assets peaking at $153 million in 2009 and rising as low as $50 million last year, according to the report to investors. Since then, assets have risen 20 percent.

The team also manages the Akamatsu Bonsai Fund, a long-only fund with $73 million, which has gained 14 percent in the first seven months of the year.

Managers of the Akamatsu Fund didn’t returns emails and calls seeking comment.

Akamatsu Fund’s returns this year through July have beaten the 5.8 percent average increase for rivals investing in Japan, according to Singapore-based Eurekahedge. It has trailed the Topix Small Index, which advanced 13 percent in the first seven months of the year. This year’s gains for the fund are a reversal from a 1 percent loss last year. The last time it had a better return was in 2013, when the fund rose 22 percent.

Sagami Rubber’s shares have advanced 66 percent this year, while those of Wavelock have climbed 75 percent since its listing on April 10. The fund also owns Japan Aviation Electronics Industry Ltd., a manufacture of switches, fiber optic devices and aerospace electronic devices. Shares of Japan Aviation rose 12 percent in July, reversing earlier declines to bring its gain this year to 3.8 percent.

The fund’s worst performers in July include Nexyz.Group Corp., a digital tool company which fell 11 percent in July, and LAC Co., a network information security provider which dropped 8.3 percent, according to the investor report. Even so, both stocks have gained more than 30 percent so far this year. The report cited the strong performance as the reason for the decline as investors sold the shares to lock in their profits.

— With assistance by Nishant Kumar

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