- Bank of Japan has released details on what types of new ETFs it wants financial companies to create
- Companies that increase capital or research spending will be eligible for purchases
- Additionally, funds that track firms boosting staff numbers, wages and investments in employee development will also meet BOJ standards
The Bank of Japan has outlined what types of companies it is prepared to invest billions of dollars in. Investors can also ride the wave through targeted Japan country-specific exchange traded funds that meet certain criteria.
The BOJ has released details on what types of new ETFs it wants financial companies to create as the central bank prepares to invest $2.6 billion per year in equities, Bloomberg reports.
Specifically, companies that increase capital or research spending will be eligible for purchases then the Japanese central bank begins its program in April. Additionally, funds that track firms boosting staff numbers, wages and investments in employee development will also meet BOJ standards.
The BOJ originally outlined its purchasing plans in December, along with a targeted pool of cash of 3 trillion yen, or $26.5 billion, it already spends per year on broader funds. The central bank hoped that its huge investments may encourage Japanese firms to invest for growth and bolster wages, instead of just sitting on piles of record cash.
“It goes beyond hard quantitative measures and opens the door up to a qualitative assessment,” Jesper Koll, chief executive officer for Japan at WisdomTree Investments Inc., told Bloomberg. “Everyone understands that just because you hire more doesn’t mean you’re a good investment. By adding qualitative elements, the BOJ are aligning themselves with investors and the need for better returns.”
ETFs that follow the JPX-Nikkei Index 400, a government-backed stock gauge started in 2014 that selects companies based on return on equity and operating profit, will also be eligible for the BOJ investment program. The JPX-Nikkei 400 Index was launched in January 2014 as a means of revitalizing the Japanese equity market. The JPX-Nikkei 400 Index employs a rigorous screening process based on return on equity, cumulative operating profit and market capitalization to select high-quality, capital-efficient Japanese companies.
U.S. ETF investors can track the benchmark index through the relatively new offerings Deutsche X-trackers Japan JPX-Nikkei 400 Equity ETF (NYSEArca: JPN) and iShares JPX-Nikkei 400 ETF (NYSEArca: JPXN).
The two offerings show similar tilts in their sector allocations. JPN’s top sectors include 20.2% industrials, 18.5% financials, 18.0% consumer discretionary. JPXN’s top areas include 21.1% industrials, 18.0% consumer discretionary and 17.2% financials.
Investors can also track the currency-hedged versions of the JPX-Nikkei 400 ETFs, which try to diminish the negative effects of a weakening yen currency, including the Deutsche X-trackers Japan JPX-Nikkei 400 Hedged Equity ETF (NYSEArca: JPNH) and the iShares Currency Hedged JPX-Nikkei 400 ETF (NYSEArca: HJPX).