While many portfolio managers stay away from illiquid, unknown, micro-cap stocks, the managers of Gabelli Asset Management’s Japan hedge fund are gravitating to such issues, Reuters reports.

"The companies that have a hidden value, a value that is not really recognized by market participants, tend to be small," Takehiko Serai, co-manager of Gabelli Japanese Value Partners, a long/short hedge fund, told Reuters. In particular, Serai said, he likes stocks that are undervalued but that generate strong cash flows and dominate their markets, however obscure. For instance, the fund owns shares in Japan’s leading hot water boiler manufacturer and in the maker of bearing balls.

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