Few investors would describe Japan as an attractive investment destination. Over the past decade, the Nikkei 225 has lost almost half of its value. Eurostat reports that Japan has one of the highest debt-to-GDP ratios at 197.5 percent, a situation that could be further compounded by an aging population and a steadily shrinking workforce. And the turnover in the Prime Minister’s office is unusual for a developed nation. But perhaps Japan merits another look.

Although the Japanese economy faces significant structural issues, large-cap Japanese companies are a step removed from the troubles. Just as a growing percentage of US firms earn their revenues overseas, most Japanese large caps are export-focused global companies that do much of their business outside Japan, leaving them largely insulated from domestic concerns.

Additionally, Japanese companies have increasingly implemented shareholder-friendly policies. For years, Japanese companies were insular entities, run for the benefit of family owners or the banks that provided them with financing. But after Japan’s banking crisis in the late 1990s, the country’s banks were forced to divest their most liquid holdings to shore up their capital bases. Foreign investors scooped up those shares and Japanese companies were forced to become more transparent. Many even began to pay attractive dividends.

Despite those favorable characteristics, investors still treat Japanese companies as if their fates are dependent upon Japan’s dismal economy. As a result, the Japanese market currently trades at a discount to book value and at its lowest price-to-earnings multiples in years. From a valuation perspective, Japan is extremely attractive.

Japan’s turbulent political atmosphere may be calming. In late August, Prime Minister Naoto Kan was forced to resign after just 15 months in office. The final months of his tenure were plagued by a campaign finance scandal and plunging approval ratings following the earthquake and tsunami in March. He was succeeded by Yoshihiko Noda, the country’s sixth prime minister in five years. Noda, a relative unknown despite his stint as finance minister, is widely viewed as a moderate consensus builder. Although any new policies will take years to bear fruit, they could help put Japan on the right economic track.

But there are plenty of opportunities in the meantime.

Over the trailing 12-months, Hennessy Select SPARX Japan Fund (SPXJX) has returned almost 18 percent versus an 11.1 percent loss for the Nikkei 225 and a 0.5 percent loss for the S&P 500.

Tokyo-based co-managers Masakazu Takeda and Tetsuya Hirano achieved those returns by selecting stocks based upon fundamental measures such as balance sheet strength, earnings quality and sustainable cash flows. Management also conducts on-site visits to better assess investment candidates.

Takeda and Hirano have allocated a quarter of their portfolio to consumer-oriented companies. Management is betting that just as Japanese companies were dominant exporters of transistor radios, televisions and other consumer electronics to the US in the 1970s and 1980s, these firms will begin to fill that role for emerging-market consumers in Asia.

Kao Corp (Tokyo: 4452) is an excellent example of the type of company management favors. Beauty-care products are one of Kao’s main lines of business and its cosmetics and skin care products are exported across Asia. Cash flows have been steadily growing due to the firm’s export business and support an almost 3 percent yield.

Portfolio holding ASICS Corp (Tokyo: 7936) manufactures sporting goods such as shoes and sportswear, as well as exercise machines and athletic equipment. Again, it has a major export business–its products can even be found in the US–and revenue has grown at an average annual rate of about 5 percent.

The fund’s 1.59 percent annual expense ratio is a big high, but it may be worth paying up for its performance. The fund is among the best performing Japan-focused funds on a three- and five-year basis, ranking within the top 20 percent of its peer group. It’s also incurred substantially less volatility than its peers.

Anyone considering investing in Japan will need a long-term horizon, and Hennessy Select SPARX Japan Fund is an excellent bet on an improving outlook.