Precidian’s McCabe: Nikkei ETF Is Step One

August 15, 2011

The first-ever U.S.-listed Nikkei 225 ETF is just the first we’ll be hearing from the firm that pulled it off, its top executive says.

Dan McCabe, president of New Jersey-based Precidian Investments, finally realized a long-standing dream of bringing to market a Nikkei 225 ETF earlier this year. It took a while, and he even dropped the firm’s former name, Next Investments, along the way.

The new fund, the Maxis Nikkei 225 ETF (NYSEArca: NKY), has already gathered almost $120 million in assets, and McCabe told Managing Editor Olivier Ludwig that the company has plans in the active ETF space and that it hopes to serve up innovative ETFs that do things like change the way distributions are made.


Ludwig: Why hasn’t a U.S. Nikkei 225 ETF happened earlier? After all, the first ETF was 18 years ago.

McCabe: I can’t give you a perfect answer to that. When people think Japan, they do think Nikkei 225. And, there were already exchange-traded products that represent this index in Asia and I believe in Germany, as well. It was just never brought to the United States because of licensing constraints.

Ludwig: And the licensing constraints that you talk about are coming more from the Japanese side?

McCabe: Absolutely, all from Nikkei. We were fortunate enough, through a very good relationship with Mitsubishi Asset Management, to procure a sublicense to be able to launch a Nikkei 225 ETF in the United States.

Ludwig: What’s the investment case you make to someone who’s looking at what’s out there and available to U.S. investors? I’m thinking about NYSEArca: EWJ from iShares, and NYSEArca: DXJ from WisdomTree. NKY, at 50 basis points, is cheaper than EWJ’s 54 basis points, but 2 basis points more than DXJ, I believe.

McCabe: I wouldn’t predicate any investment decision based on a difference of, what, 4 basis points. That’s kind of a silly way to look at it. But I do believe that this index is as different from those products as the Dow is from the S&P.

The Nikkei is a dollar-denominated index that is more of a domestic play for Japan. It is less weighted to financials than EWJ, for instance. The financial component of NKY is about 4 percent of the index, whereas with EWJ, I believe financials make up about 16 percent. So there are real fundamental weighting differences between these two products. And I believe that NKY is better positioned to benefit from a growth on domestic on-shore valuations, and that relates to the spending that’s going to happen because of the tsunami and because of the earthquake.



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