ETF Showdown: Comparing Japanese ETFs

December 16, 2015

[This article was first published in the December 2015 issue of ETF Report UK]

We compare and contrast two ETFs competing to provide exposure to Japan equities, looking at expenses, tracking, trading volumes, liquidity and exposure.

Why Invest In Japanese Equities?

Ever since Shinzo Abe was elected Prime Minister in December 2012, investors have watched as his three-arrow socioeconomic programme has boosted the domestic stock market, targeted higher inflation and driven through corporate reforms.

When Japanese equities shot up in 2013, the yen was decimated, bringing in a wealth of currency-hedged ETFs from opportunistic providers. But in 2015 major currencies like the USD, GBP and EUR have all depreciated against the yen and unhedged exposure to Japanese equities is now a popular trade.

The Government Pension Investment Fund is allocating more capital to equities and the Bank of Japan promises to keep buying up Japanese equity ETFs—all good signs for the stock market.

What Options Exist For Investing In Japanese Equities?

We will focus on two ETFs that track this equity market:

  • Lyxor JPX-Nikkei 400 UCITS ETF (JPX4)
  • db X-trackers MSCI Japan Index UCITS ETF (XMJP)

In an attempt to compare apples to apples, these funds accumulate dividends and are not currency hedged.

Although the Topix and the Nikkei 225 are the most well-known indices to measure Japan, new and exciting heavyweight indices are the focus here because they offer more diversified exposure, and the JPX 400 tracks companies that are driving corporate reform.

ETFShowdownJapanEquities_Fig2

What Indices Do They Track?

The Lyxor fund tracks one of the most popular new indices of the past two years—the JPX Nikkei 400, which has a lot of appeal for investors looking to get a foothold in Japan. It is specifically designed to focus on companies that are driving shareholder value through corporate reform, dividends and share buybacks. Stocks are not only selected by their market cap but also their trading value, return on equity and other factors.

Meanwhile the db X-trackers fund is focused on MSCI Japan, a market cap weighted index which tracks 291 mainly large cap and midcap companies.

 

 

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