Japan Rising, And SSgA With It

November 14, 2006

SSgA unveils two well-timed Japanese ETFs, and promises a slew of international funds are on the way.

 

There are some pretty smart folks out there who think that Japan is the place to be. With relatively low valuations and an economy shaking off a decade-plus of deflation-induced lethargy, there is an emerging consensus that Japan is ready for another long boom.

If so, the two new exchange-traded funds (ETFs) from State Street Global Advisors (SSgA) that hit the market today are sure to be a hit.  The funds, which listed on the American Stock Exchange (AMEX) this morning, are the:

  • streetTRACKS Russell/Nomura PRIME Japan ETF: JPP
  • streetTRACKS Russell/Nomura Small Cap Japan ETF: JSC

The underlying indexes are long-established products from Russell and Nomura, which use the same general methodology and rules as Russell's U.S. indexes.

The "PRIME" index tracks the 1,000 largest companies in the Japanese market, and covers the vast majority of the market.  At the last rebalancing, the index included stocks with market caps as low as $183 million dollars.

The Small Cap index overlaps with the PRIME index, tracking the smallest 15 percent of companies in Japan. At the last rebalance, that worked out to a market-cap-cutoff of approximately $1 billion.  Russell does offer large- and mid-cap Japanese indexes, but SSgA decided that the combination of the PRIME and Small Cap indexes would be more attractive to investors, despite the overlap.

Both indexes are adjusted for float, and both ETFs charge 56 basis points in expenses.

The ETFs will go head-to-head with competing Japan funds from Barclays Global Advisors and WisdomTree Investments.  The iShares MSCI Japan Index Fund (NYSE: EWJ) is the big daddy in the field, with assets of $13.2 billion and a history tracing all the way back to March 12, 1996.  That fund holds 349 companies, and is designed to track the top 85 percent of the market capitalization of the Japanese markets. It charges 59 basis points.

"These new ETFs add to our collection of international funds and enable investors to better access the Japanese market, a global economic powerhouse second in size only to the U.S. market," said James Ross, senior managing director of State Street Global Advisors.

WisdomTree included three Japan funds in its launch earlier this year: 1) the WisdomTree Japan Total Dividend Fund (DXJ), which tracks all dividend-paying companies in Japan; the Japan High-Yielding Equity Fund (DNL), which tracks the 30 percent highest dividend-paying companies in Japan; and the Japan SmallCap Dividend Fund (DFJ), which tracks all dividend-paying Japanese companies beyond the 300 largest names.

The WisdomTree funds charge 58 basis points in annual expenses.

Many, Many More To Come

The Japan launches are the first of a wave of international ETF launches for SSgA.

"This launch is just a first step for SSgA," said Ross. "In the near future, we plan to introduce additional international ETFs that will provide cutting-edge, geography-specific and industry-targeted exposure."

International has become the hottest sector of the ETF market, and SSgA wants to eat away from the dominant market share owned by arch-rival, BGI.  Towards that end, the company plans to launch an additional fourteen funds in the near-term:

SPDR S&P Asia Pacific
SPDR S&P Asia Pacific Emerging
SPDR S&P China
SPDR S&P EPAC
SPDR S&P Europe
SPDR S&P European Emerging
SPDR S&P Latin America
SPDR S&P Middle East & Africa
SPDR S&P World (ex-US)
SPDR S&P World (ex-US) Small Cap
streetTRACKS DJ Wilshire Global (ex-US) Real Estate
streetTRACKS Macquarie Global Infrastructure 100
streetTRACKS MSCI ACWI (ex-US)

Full coverage of the filing is available here.  http://www.indexuniverse.com/sections/breaking-news/10/833.html

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