By Lawrence Carrel

Abenomics may have fallen short of expectations, but a nine-day rally just pushed the Tokyo stock market to a 15-year high. So, while analysts say Japanese corporations are pessimistic on the country’s economic growth, one mutual fund manager believes now is the time to buy Japanese stocks.

“Compared to five years ago when I had nothing good to tell about Japan, I am now optimistic,” said Masakazu Takeda, portfolio manager of the Hennessy Japan Fund (HJPIX, HJPNX). “I fully support the idea behind Abenomics. It’s not only the right prescription for the Japanese economy, it’s the only prescription available to Japan at the moment given the higher debt to GDP ratio.”

The Nikkei 225 on Wednesday gained 35.10 points, or 0.17%, to close at 20,472.58, a level not seen since April 2000. Since the rally began, the Nikkei has gained 4%. The broader Tokyo Price Index (TOPIX) added 0.11% to 1,661.33. It remains about 40% below its 1989 peak. The key index did even better on Thursday.

Tokyo-based SPARX Asset Management, one of the largest Asia-based asset management firms, with $8 billion under management, is the sub-advisor to the Hennessy Japan Fund. Takeda has been the lead manager of the Japan Fund since 2006. The fund was sold to California-based Hennessy Funds in 2008 along with the Hennessy Japan Small Cap Fund (HJPSX).

The Japan Fund’s strategy is to identify equities with a “value gap” and limits the portfolio to just the manager’s best ideas. That’s why it only holds 23 stocks.  As of May 27, the fund managed $117.2 million in assets and was up 12.7% year to date. It has a turnover rate of just 22% and charges an expense ratio of 1.44%

At the end of the first quarter, the Japan Fund had outperformed its benchmarks since its 2003 inception, including the one-year, three-year, five-year, and ten-year periods. For the ten years ended March 31, the fund posted an average annual total return of 5.84%, beating the TOPIX’s 3.37% annualized return and the 3.52% recorded by the Russell/Nomura Total Market Index. For the twelve months ended March 31, the Japan Fund outperformed both indices by 720 basis points.

Abenomics is the three-piece plan to turn around the Japanese economy instituted by Prime Minister Shinzo Abe. The three “arrows” are 1) a monetary easing policy, 2) large-scale fiscal stimulus measures, and 3) structural reforms.

The first two arrows have already been shot. The quantitative easing and fiscal stimulus helped lift Japan out of its nearly decade-long deflationary spiral and weakened the yen by nearly 50% compared to the U.S. dollar. The weaker currency has helped Japanese earnings by making it easier for exporters to sell their products abroad. Japanese carmakers have been one of the biggest beneficiaries.

But the policies haven’t been fully effective. The Japanese economy slipped into a brief recession after a sales-tax hike. However, the economy grew more than expected in the first three months of the year, 0.6%, compared to the market’s expectation of 0.4% growth.

Meanwhile, core inflation peaked in April 2014, but falling crude oil prices and the tax increase caused it to decline to 0.2% in March. Bank of Japan Deputy Governor Kikuo Iwata said Wednesday the country will hit the central bank’s 2% inflation target around the middle of 2016.

Now is the time for the third arrow: structural reforms in the economy that tackle corporate governance, taxes, and the labor market, as well as creating new industries.

“People are talking about the structural reforms and they say we’re not seeing any progress, so Abenomics is a failure,” said Takeda. “That view is too short sighted. We’re talking about reforms that will take a long time to bear fruit. You can’t change the economy or the country overnight.”

In the fund Takeda is focused on companies that have the potential to grow overseas in both Asia and Europe. He said the rise of other Asian counties is big tailwind for Japan because it creates new markets for Japanese firms to sell their products.

The fund’s top five holding are Fuji Seal International, at 5.1% of the portfolio; Nidec, 4.9%; Rohto Pharmaceutical, 4.9%; Keyence, 4.9%; and Mitsubishi, 4.9%. His favorites are Unicharm and ASICS, each make up 4.7% of portfolio. He likes them both because they are strong brands with global recognition.

Unicharm makes baby diapers and is a broad Asia play. It’s the No. 1 brand in all of Asia, with 60% of the market in Thailand and Indonesia, said Takeda. He said it’s also No. 1 in Japan, Myanmar and Vietnam, and No. 2 in China. He said one of its growth drivers is adult diapers.

Meanwhile, ASICS is one of the leading running shoe companies in Europe and the U.S. Takeda said in the New York City Marathon, of the 40,000 participants, among the runners who finish the race in less than five hours, ASICS has a 50% market share.

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