The 15 Most Important ETFs

October 06, 2015

EWJ: iShares MSCI Japan

The 15 most Important ETFs3

The iShares MSCI Japan (EWJ | B-99) was launched in 1996 as part of Morgan Stanley's World Equity Benchmark Series, which were a group of country-specific funds that tracked Morgan Stanley Capital International (MSCI) country indexes. The funds were developed with Barclays Global Investors, and in 2000, were renamed the iShares MSCI Series.

These were the first ETFs to provide exposure to foreign markets, which was revolutionary at the time. And it allowed for price discovery when those markets were closed during U.S. trading hours. Before this, outside of the options market, there wasn't a live price for a market like Japan.

"In 1996, I would say nobody I knew was talking 'price discovery,'" said Dave Garff, managing director of Walnut Creek, California-based Accuvest Global, who was a broker then. "And you wanted to own tech. You weren't really thinking internationally."

Global investment options, though, would soon be very much on radar screens everywhere.

"In 2004, dollar volumes of non-U.S. ETFs exploded," said Garff. "Part of that has to do with the fact that during that time, you have non-U.S. assets that are making money and U.S. markets underperforming. I personally believe it was the performance that drove the interest."

And in 2015, country-specific ETFs have become sliced and diced much like the rest of the investment universe.

"EWJ is a great segue in to the things you can do now with Japan ETFs," Garff added. "There are all kinds of Japan ETFs now: large-cap, small-cap currency-hedged, noncap-weighted. The only way any of those were going to happen for investors was if EWJ was successful."

We chose EWJ as opposed to the other WEBS products because of Japan's markets being closed during U.S. trading and the price discovery it created. Most of the other country-specific products were in European or South American markets, which also have some overlap with the U.S. We could just as easily have chosen any of the other original WEBS funds.

EWJ tracks a market-cap-weighted index of Japanese stocks, providing broad exposure to the Japanese equity market with a large-cap tilt, and excludes most small-caps. Industry tilts are present, but very minor.

When it comes to liquidity, EWJ is a titan today. The fund trades hundreds of millions of dollars on most days, at pennywide spreads. Its massive assets under management—nearly $20 billion—and strong liquidity set EWJ apart from its Japan ETF competitors.

The 15 most Important ETFs4

 

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