Japan-Asia Focus Fund (HFJAX, HFJCX)

This Fund seeks to achieve long-term capital appreciation primarily through investment in equities of Japanese companies and secondarily through investment in equities of other Asian countries.

• Quarterly Factsheet

 

Why invest in this fund?

• A multi-manager approach that combines bottom-up security selection with a strategic asset allocation process
  
• Exposure to attractive investment opportunities in Japan and Asia Pacific within focused sub-portfolios
  
• Individual members of the team focus on fundamental research; analyzing company valuations, earnings growth prospects and unique competitive advantages
  

Fund facts (as of 6/30/10)

Inception date:	1/31/06
Minimum initial investment:	$500
Benchmark:	MSCI Japan Index
Median market cap ($billions):	8.2
Total number of holdings:	38
Forward 12-month P/E ratio:	14.6
P/B ratio:	1.0
Beta:	1.1
% of holdings in top 10:	35.8
Class A expense ratio1:	1.99
Morningstar rating (as of 07/31/10)2

¹  This ratio is not a guaranteed number and may fluctuate. The class A expense ratio is presented as a percentage of average net assets. The expense ratio is unaudited and is based on annualized fiscal year-to-date results from 8/01/09 to 6/30/10. The ratio may differ from that presented in the Fund’s prospectus that is based on the Fund’s then most recent previous fiscal year.

² Morningstar category: Japan Stock, Number of funds in category: 25. The overall Morningstar Rating for the Fund is derived from a weighted average of the risk-adjusted performance figure associated with its 3-  year Morningstar Rating metrics.

 

Portfolio management

Asset Allocation Strategist
Iain Clark

• Read biography

Japan
Michael Wood-Martin

• Read biography

Asia Pacific
Michael Kerley

• Read biography

Top ten holdings %
(as of 7/31/10)

Mitsubishi UFJ Financial (Japan)	5.4
Canon (Japan)	4.0
Sumitomo Mitsui (Japan)	3.9
Daiwa (Japan)	3.6
MS&AD Insurance Group (Japan)	3.6
Yamada Denki (Japan)	3.5
Shin-Etsu Chemical (Japan)	3.5
Inpex (Japan)	3.3
Nintendo (Japan)	3.0
Bridgestone (Japan)	2.9

Country classifications are based on a company's legal domicile rather than the underlying exposure of its business.

• Full holdings list

Performance

Relative performance as of 6/30/10

Inception date 1/31/06.

Lipper, Inc. is an independent mutual fund rating service that ranks funds in various categories by making comparative calculations using total returns. Lipper returns do not take into effect sales charges. Rankings are for Class A shares only; other share classes may vary. Rankings shown exclude Exchange Traded Funds (ETFs) which are securities that track an index, a commodity, or basket of assets like an index fund. Unlike mutual funds, ETFs trade like a stock on an exchange, thus experiencing price changes throughout the day. For the period ending 7/31/10, there were 9 ETFs excluded from the Japanese Funds rankings. If the rankings provided did not exclude ETFs from the respective categories, the rankings for the Henderson Japan-Asia Focus Fund may be lower.

Expense ratios are not guaranteed numbers and may fluctuate. Gross and net expense ratios are presented as a percentage of average net assets. The gross expense ratio is stated in the current prospectus and is based on the Fund's then most recent previous fiscal year. The net expense ratio is unaudited and is based on annualized fiscal year-to-date results from 8/01/09 to 6/30/10. The ratio may differ from that presented in the Fund's prospectus.

Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. Performance results with sales charges reflect the deduction of the maximum front end sales charge and/or the deduction of the applicable contingent deferred sales charge (CDSC). Class A shares are subject to a maximum front end sales charge of 5.75%. Class C shares may be subject to a CDSC of up to 1% on certain redemptions made within 12 months of purchase. Performance presented at NAV which does not include these sales charges would be lower if these charges were reflected. The Fund’s annual operating expenses will likely vary from year to year. It is important for you to understand that a decline in the Fund’s average net assets during the current fiscal year due to recent market volatility or other factors could cause the Fund’s expense ratios for the Fund’s current fiscal year to be higher than the expense information presented. Returns greater than one year are annualized. Index returns provided by Lipper, Inc. Net Asset Value (NAV) is the value of one share of the Fund excluding any sales charge.

The recent growth rate in the stock market has helped to produce short term returns for some asset classes that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short term changes.

Returns included the reinvestment of dividends and capital gains. Performance results reflect expense subsidies and waivers in effect during the periods shown. Absent these waivers, results would have been less favorable for certain periods.

Forward 12-month P/E ratio is calculated using the closing price of portfolio holdings divided by the sum of the 12-month forward earnings per share. P/B ratio is calculated using the closing price of portfolio holdings divided by the most recent fiscal year end book value. Both calculations take into account the respective weightings of portfolio holdings. Beta is a quantitative measure of the volatility of a given stock, mutual fund, or portfolio, relative to the overall market. The MSCI Japan Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance in Japan. It is not possible to invest directly in any index or average.

Fund overview

This Fund seeks to achieve long-term capital appreciation primarily through investment in equities of Japanese companies and secondarily through investment in equities of other Asian countries. The Fund employs a process that combines a bottom-up approach to individual security selection with a strategic asset allocation process. Security selection is based on an analysis of a company's valuations, earnings growth prospects and unique competitive advantages. The Fund is managed by a team of Portfolio Managers. The Asset Allocation Strategist, Iain Clark, oversees the management of the Fund and the allocation of the Fund's assets among countries, regions and sectors. Individual members of the team manage the Fund's investment in specific countries, regions and sectors. 

Quarterly update

Global markets took a turn for the worse over the past couple of months as problems emanating predominantly from Europe took the shine off equities. While equities retreated, bond markets in major economies strengthened reflecting many investors' preferences for potential safety over riskier asset classes. The yen rose sharply, registering gains against the US dollar, sterling and euro.

Economic statistics were largely overshadowed by macro events. While further improvement was witnessed over the quarter, momentum is beginning to wane with the prospect of more gradual improvement in the months ahead.

Fund performance

Over the period, the Fund outperformed its benchmark, MSCI Japan Index. The overweight position in the Consumer Discretionary sector was the largest contributor as domestic related stocks such as ABC Mart, Secom and NS Solutions performed strongly. ABC Mart continued to outsell competitors in the shore retail market while Secom’s position in the security market continued to strengthen. Software company NS Solutions’ order flow is anticipated to improve in the year ahead.

On the downside the overweight position in Financials was the largest drag on the portfolio as stocks declined as the market fell back. Credit Saison (credit cards), MS&AD (insurance) and Daiwa Securities all suffered.

Investment activity

There were a couple of changes made to the portfolio over the quarter. Leopalace (real estate) was dispatched after a period of relatively strong performance which only partially made up for the derisory behavior of the stock over the past couple of years. The company revised profits lower after disposal and the share price subsequently halved.

Sankyo, which manufactures pachinko (pinball) machines was purchased after a period of poor performance and as the stock was selling on close to cash. As the company has no debt, the prospect of investment was enticing.

Elsewhere it was a case of adding to and subtracting from stocks dependent on relative performance with the thrust of the portfolio remains towards domestic rather than export sectors.

Outlook

The events in recent weeks have revealed concerns over the sustainability of economic recovery in the face of fading economic stimuli and planned fiscal retrenchment. Markets are right to be concerned although the reaction in equities has been marked. Some respite may therefore be in order over coming months. The portfolio may look for such opportunities near term whilst keeping a careful eye on economic developments.

Japan-Asia Focus Fund