The iShares MSCI Japan ETF (NYSEArca: EWJ), the largest US-listed exchange traded fund tracking Japanese equities, is modestly higher this year, but investors are displaying plenty of enthusiasm for the popular Japan fund.
Further supporting the notion of buying Japan ETFs, Japanese equities are growing less correlated to the whims of its yen currency. Traders have typically driven up Japanese equities in light of a weak yen currency due to the economy’s heavy reliance on exports as a weaker currency makes their products more competitive on the global market.
“The iShares MSCI Japan ETF, known by its ticker EWJ, has taken in more than $3 billion this year — that’s already five times more than what investors put in all of last year,” reports Bloomberg. “Buyers have poured almost $800 million into U.S.-listed ETFs tracking international equities this year through Feb. 20, according to Bloomberg data. That’s a 4.3 percent jump in the strategies’ market capitalization, compared to a 0.3 percent rise in the market cap of funds tracking domestic equities.”
Alternatives to EWJ include the Deutsche X-trackers Japan JPX-Nikkei 400 Equity ETF (NYSEArca: JPN), which recently lowered its annual fee to 0.09% from 0.15%, making it one of the least expensive Japan ETFs on the market.
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.
The Bank of Japan’s loose monetary policies along with a wider rising rate differentials between the U.S. and Japan could support a depreciating Japanese yen currency over the short-term, which would bolster the export-heavy Japanese market. Still, the Bank of Japan is committed to keeping the yen weak and stirring inflation in the world’s third-largest economy.
Japanese stocks are among the most attractively valued in the developed world. The $22.4 billion EWJ, which tracks the MSCI Japan Index, holds 321 stocks. Industrial and consumer discretionary stocks combine for almost 42% of the ETF’s weight.
For more information on the Japanese markets, visit our Japan category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.