Rolle im Portfolio
The UBS ETF -- MSCI Japan ETF provides exposure to the largest companies in Japan, the world’s second biggest developed equity market, representing 8-10% of the MSCI World Index, and therefore it could be considered as a core component of a well-diversified portfolio. However, given its narrow geographic exposure, European investors may use it as a tactical play on the Japanese equity market.
With over 300 large- and mid-cap holdings, the index offers strong diversification at stock level, although its top 10 constituents account for 20-25% of its market capitalisation. On a sector level, 60-65% is spread across the cyclical consumer discretionary, financials, and industrial sectors.
This ETF offers unhedged exposure to the Japanese currency. If this FX exposure is unwanted, investors can choose from a wide array of currency-hedged ETFs. The decision of whether to use hedged or unhedged products depends on two factors: the holding period and personal attitudes to risk. The currency-hedged version exhibits 30-50% higher volatility at 3-, 5- and 10-years. Over the long-term (e.g. 10 years) hedged and unhedged returns tend to converge, and, in some cases, unhedged returns may outperform.
The fund is offered in dividend-distributing class and is therefore suitable for income-seeking investors.
Fundamentale Analyse
For well over two decades, the Japanese economy has struggled with deflation, a strong yen, widespread corporate deleveraging, and weak political leadership; all of which have negatively impacted the equity market. In the 10-years to April 2015, the MSCI Japan Index underperformed the MSCI World by 3.13% on an annualized basis in USD terms. Since 2013, however, both indices have produced similar returns, as Japanese equities have regained impetus.
The reason for this reversal of fortunes is to be found in the radical change of economic policy since the election of PM Abe in December 2012. Popularly known as “Abenomics”, the policy is an unprecedented in size combination of monetary (e.g. quantitative easing) and fiscal stimulus, aimed at spurring consumer spending, bring inflation back up to target, and incentivise economic agents to re-allocate from fixed income to riskier (i.e. equity) assets.
The policy, recently extended into a second, open-ended, phase, has already seen the Bank of Japan’s balance sheet expand to become the biggest in the world as a proportion of GDP at 57% (the Fed and ECB’s are estimated at 25% and 20% of GDP). In addition, the Yen has experienced a massive devaluation against major currencies (45% over the last three years). This, combined with the recovery in the US and, more recently, Europe - Japan’s biggest trade partners – has provided a boost to Japanese corporate balance sheets and competitiveness.
The government has also began a series of structural reforms to liberalize the labour market, cut taxes, and invest in the infrastructure and health-care sectors. This is seen as crucial to revive the economy as, while exports are important, 60% of Japan’s GDP comes from consumption. Key in this context is PM Abe’s push to lift real wage growth in the economy. Basic pay grew at its fastest pace in 15 years in early 2015. Sustained wage growth should be welcomed by the equity markets, as it is a major inflation tailwind.
The government is also leading by example in the re-allocation shift towards riskier assets. In October 2014, the USD 1.25tn Government Pension Investment Fund (GPIF) announced it will double its allocation in domestic equities to 25%, pumping over USD 155bn through passive and active vehicles. This is expected to create a “multiplier” effect, with private pension funds and banks following suit. This would provide firm support to Japan’s equity market.
Indexkonstruktion
The MSCI Japan Index is designed to measure the performance of the large- and mid-cap segments of the Japanese equity market. With 300-325 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Japan. Components must meet minimum criteria for liquidity, foreign ownership restrictions, and a waiting period for newly listed stocks. The free float adjustment serves to ensure higher underlying liquidity relative to a pure market capitalisation weighting. The index is well diversified across industries – the biggest exposure is towards consumer discretionary, financials and industrials – all weighted 20-25%, followed by information technology (10-15%) and health care (5-8%). On a company level, Toyota is at the top with a weighting of 6-8%, followed by Mitsubishi UFJ Financial Group (3-5%); all remaining constituents are below 2%.
Gebühren
The fund levies a total expense ratio of 0.35%, making it amongst the cheapest ETFs providing currency unhedged exposure to Japanese equities by tracking the MSCI Japan index. Other potential costs include rebalancing costs, bid-ask spreads, brokerage fees, and rollover costs.
Alternativen
There are many options to gain exposure to the Japanese equity market. The range of available funds enables investors to invest via a variety of standard market-cap as well as strategic beta indices.
As we write, there are several ETF providers offering currency unhedged, dividend distributing exposure to MSCI Japan. These include HSBC (0.40%), Amundi (0.45%), Deka (0.50%), and iShares (0.59%).
Funds offering similar exposure, though tracking different indices, include the iShares Core MSCI Japan IMI and Vanguard FTSE Japan, charging respectively 0.20% and 0.19%.
An alternative gaining popularity to access the Japanese equity market is the Nikkei 400 “strategic beta” index. It uses qualitative and quantitative scoring to select 400 companies that meet specific requirements on the efficient use of capital and have an investor-focused management approach. Most European providers offer ETFs tracking the Nikkei 400 in both currency unhedged and hedged versions. TERs range from 0.18% to 0.45%. However, most of these funds do not distribute dividends.
