Although the country is largely overshadowed by China, Japan is
still an economic force. The nation is #3 in terms of total GDP
from a national perspective by most accounts, easily edging out all
of the major Western European economic powers.
For this reason, as well as the nation’s incredible export
prowess and deep level of savings, the economy of Japan cannot be
ignored by most investors. Furthermore, due to its location and
domination of production in a variety of consumer goods, the
country can also be a safer play on emerging Asia, especially as
these nations see more of their citizens reach the middle class and
are able to purchase more consumer goods.
In terms of gaining exposure to the country, there are a few
major Japanese corporations that can easily be purchased via the
NYSE. However, these firms are few and far between and tend to be
the ultra-large corporations in the electronics or automotive
sectors. So for those looking for more diversified Japanese
exposure, an ETF approach must be taken (read Japan ETFs: One Year
After The Fukushima Disaster).
Japan ETFs in Focus
Currently, there are a dozen Japanese equity ETFs currently
trading in the U.S. market. While there are a handful that are
relatively specialized, either tracking small cap benchmarks or
dividend focused indexes, the most popular target the broad
markets.
Of these, the lion’s share of assets goes to the iShares
MSCI-Japan Index Fund (EWJ), the oldest of the bunch. This
product had its debut in 1996 and currently sees an impressive
volume level of 13 million shares a day and a market cap over $4
billion.
Yet beyond that fund, there is also a broad, and relatively new,
fund that provides similar exposure to the Japanese market,
NKY. This ETF, from Maxis, doesn’t have nearly the
same level of AUM or volume-- $180 million in assets, 350,000
shares a day in trading—but it does follow a much more widely known
index, the Nikkei 225.
The Nikkei 225 is by far the most well-known of the Japanese
benchmarks and is in many ways the DJIA of the country. That is
because the benchmark is also price-weighted and it seeks to
reflect the broad performance of the national stock market (see
Developed Asia Pacific ETF Investing 101).
So while NKY tracks a more recognizable index, is the fund a
better choice for Japan ETF investors out there? Below, we have
highlighted some of the other key differences between the two funds
in order to give investors a better idea of how investing in NKY
might vary from purchasing EWJ shares for those seeking broad
Japanese ETF exposure:
iShares MSCI Japan Index Fund (EWJ)
By far the most popular Japanese ETF out there, EWJ is also one
of the more popular country ETFs currently on the market. The fund
is also a relatively inexpensive choice, coming in at 51 basis
points a year in fees, in line with other Asia-Pacific ETFs from
this perspective (read Asia Ex-Japan ETF Investing 101).
Top holdings are skewed towards some well-known names with
Toyota (TM), Mitsubishi Financial, and Honda
accounting for the top three spots. Beyond that, a number of other
financials and a few staple-like firms round out the top ten,
although it should be noted that only Toyota (5.4%) makes up more
than 3% of total assets.
From a sector breakdown, both industrials and consumer cyclical
take up roughly 20% each, while financials and tech round out the
top four. Energy and utilities are light in the ETF while mid caps
only account for 8% of the product, suggesting a heavy tilt towards
the biggest firms in Japan (read the Three Biggest Mistakes of ETF
Investing).
Maxis Nikkei 225 Index Fund (NKY)
For a new way to play Japanese stocks, investors have NKY. The
fund had its debut in July of 2011, and has managed to attract a
decent investor following since then. It hasn’t hurt that the
expense ratio is reasonable, coming in at 50 basis points a year,
or one less than rival EWJ.
The top holdings in this ETF are made up of more names that most
Americans probably haven’t heard of, with Fast Retailing (7.7%),
FANUC Corp (5.85%), and Softbank (3.65%) taking the top three
spots. Kyocera, Honda, and Canon do make their way into the top
ten, but Toyota doesn’t crack the top dozen (although it is roughly
15th and accounts for about 1.4% of assets).
Unsurprisingly, this results in a different sector profile for
the ETF as industrials (24%), and consumer cyclical (20%) take the
top two spots, followed by tech and healthcare with, respectively,
15% and 10% each (read For Japan ETFs, Think Small Caps).
On the light side, energy makes up about 1% while real estate
only receives about 4% of assets, along with financials, although
13% of the fund is in mid caps and another 2% in small caps,
suggesting a slightly smaller average market capitalization.
|
EWJ
|
NKY
|
Benchmark
|
MSCI Japan Index
|
Nikkei 225 Index
|
Assets
|
$4.1 billion
|
$186 million
|
Expenses
|
0.51%
|
0.50%
|
Top Holding
|
Toyota (5.4%)
|
Fast Retailing (7.7%)
|
Annual Yield
|
2.2%
|
1.5%
|
Performance YTD
|
-3.7%
|
-0.7%
|
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ISHARS-JAPAN (EWJ): ETF Research Reports
MAXIS-NIK 225 (NKY): ETF Research Reports
TOYOTA MOTOR CP (TM): Free Stock Analysis Report
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