Smart Beta ETF Industry Gets Vote of Confidence from Central Bank

Prime Minister Shinzo Abe has been seeking more aggressive monetary and fiscal policies to help support an ailing Japanese economy. As part of the administrations revitalization plan, the BOJ and large state funds have steered away from conservative bets for riskier equity exposure.

“But in this case the BoJ is working from a macro perspective to try to help the economy to raise wages, increase consumption and boost capital investment,” Makoto Shiota, head of ETF marketing at Nomura Securities, told the Financial Times. “That is how these ETF products came about.”

The BOJ has already been buying alternative index-based funds. For instance, The central bank has ETFs that track the JPX-Nikkei 400 Index. The JPX-Nikkei 400 Index was launched in January 2014 as a means of reinvigorating 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.

Related: Currency-Hedged ETFs Ebb International Volatility

U.S. ETF investors can also track the benchmark index through relatively new offerings, including the Deutsche X-trackers Japan JPX-Nikkei 400 Equity ETF (NYSEArca: JPN) and iShares JPX-Nikkei 400 ETF (NYSEArca: JPXN).

Additionally, if the yen currency depreciates against the U.S. dollar, investors can look to currency-hedged JPX-Nikkei 400 ETF options, such as the Deutsche X-trackers Japan JPX-Nikkei 400 Hedged Equity ETF (NYSEArca: JPNH) and iShares Currency Hedged JPX-Nikkei 400 ETF (NYSEArca: HJPX).

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