Wisdom of Japan Hedge Fund Returns 2% on Taiyo Yuden, Nipponkoa
By Tomoko Yamazaki and Komaki Ito
April 3 (Bloomberg) -- Tadashi Mukai, returning to run his own his hedge fund after being the nation’s top performer in 2007, posted a 2.1 percent gain in March for his Wisdom of Japan Fund by betting on rising and falling stock prices.
The Epic Partners Investments Co. fund, which employs a so- called market-neutral strategy, doubled initial assets to 850 million yen ($8.5 million) since starting March 2, according to Mukai. The 44-year-old, who joined Epic in August and has managed market-neutral funds for eight years, aims to raise 10 billion yen from investors for the fund within a year.
Buying shares of electronic components maker Taiyo Yuden Co. and selling those of casualty insurer Nipponkoa Insurance Co. were the biggest contributors to his performance in March.
“Market-neutral funds focused on Japanese stocks are all about diversification, so you are pretty much hedged for any sort of unexpected events like a missile from North Korea or some natural disaster like an earthquake,” Mukai said in an interview in Tokyo yesterday.
The gain by the fund, whose investors are all wealthy individuals in Japan, compares with an average 0.4 percent decline by the Eurekahedge Japan Hedge Fund Index, based on preliminary figures.
Mukai’s investment process begins by whittling down Japan’s 4,000 publicly traded companies to the 1,200 stocks that trade the most. He then invests in about 300 stocks with almost equal holdings of long and short positions.
In a short position, an investor sells borrowed shares, hoping to profit once prices decline by buying them back at a lower price. Market-neutral funds seek to profit from both rising and falling prices by matching long and short positions in different stocks to boost returns.
Mukai based his purchase of Taiyo Yuden shares on the views of Takumi Sado, a Daiwa Institute of Research analyst who on Feb. 22 made the company his top pick, arguing that risks linked to inventory levels weren’t as great as the stock price indicated. The company surged 26 percent in Tokyo trading in March.
For his short position, he sold Nipponkoa, which announced plans to merge with Sompo Japan Insurance Co. on March 13. Mukai followed the advice of JPMorgan Chase & Co. analyst Natsumu Tsujino, who cut her recommendation on the stock to “underweight” from “neutral” on the day of the announcement, saying Nipponkoa was overvalued, even after a merger. Nipponkoa slid 23 percent in March.
Mukai is forecasting some declines in stocks in April as companies start reporting earnings for the fiscal year ended March 31 and providing guidance for the next 12 months.
“We’ve seen some stocks that have simply rallied without any fundamental reasons,” Mukai said. “When we get the earnings at the end of the month, that will give us a reality check, creating opportunities on the downside.”
In 2007, Mukai ran the UMJ Neutro Fund at United Managers, which climbed 11 percent, the biggest return among 13 Japan- focused market-neutral funds, according to data compiled by AsiaHedge.
Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their investments.
To contact the reporters on this story: Tomoko Yamazaki in Tokyo at firstname.lastname@example.org; Komaki Ito in Tokyo at email@example.com
Last Updated: April 2, 2009 21:54 EDT