3 Funds To Ride Japan's Economic Resilience

Japan has exhibited economic resilience amid global economic downturns. The Asian giant’s second-quarter GDP growth is a testimony to such a claim. Further, business activity in Japan improved significantly, propelling the country’s services PMI to its highest levels since April.

Such developments indicate that the country’s economy is treading on a steady path. Under such circumstances, investing in mutual funds from Japan seems prudent.

Japan’s Service PMI Hits 6-Month High

Per the latest report on Nov 5, the Nikkei Japan Services Purchasing Managers' Index (PMI) surged to 52.4% in October after hitting 50.2% in September. Any reading above 50 indicates that the economy is expanding. The metric has exhibited growth consecutively for more than two years now. This suggests that Japan’s service sector is growing by leaps and bounds.

Further, the rate of improvement in demand within the Japanese economy also hit its highest level since 2013. Primarily, an impressive improvement in business activity in Japan led to such developments.

Japan’s Q2 GDP the Highest in 2 Years

Per Japan’s Cabinet Office, the country’s real GDP rose 3% in the second quarter of 2018. This follows a contraction witnessed by the Japanese economy in the first quarter.

Overall capital expenditure increased 3.1% in the second quarter of 2018, surpassing the preliminary reading of an increase of 1.3%. Notably, Japan’s capex increased at its fastest pace since the first quarter of 2015. This gave a major boost to Japan’s economic growth in the second quarter.

In August, the country’s GDP rose 0.8% driven by robust private-sector demand, which added 0.6 percentage points to GDP. Further, housing investment and capital spending also added to the growth, rising 1.2% and 0.6%, respectively, in the month. Further, external demand increased 2% in the month, whereas imports gained 1%.

3 Best Fund Choices

We have thus selected three Japan mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain from such factors. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5,000.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

T. Rowe Price Japan PRJPX seeks capital appreciation in the long run by investing the majority of its assets in securities of companies based in Japan. PRJPX invests in various Japanese companies and industries, irrespective of their size.

This Sector - Japan - Equity product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

PRJPX has a Zacks Mutual Fund Rank#1 and an annual expense ratio of 0.97%, which is below the category average of 1.27%. The fund has three and five-year returns of 19.7% and 11.2%, respectively.

ProFundsUltraJapan Fund Service Class UJPSX seeks daily investment results that correspond, before fees and expenses, to 200% of the performance of the Nikkei 225 Stock Average. The fund provides leveraged exposure to the large-cap, Japan-based Nikkei 225 Stock Average.

This Sector - Japan - Equity product has a history of positive total returns for over 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

UJPSX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 2.66%, which is below the category average of 2.70%. The fund has three and five-year returns of 17.5% and 14.3%, respectively.

Hennessy Japan Investor HJPNX seeks appreciation of capital in the long run. The fund invests the majority of its assets in securities of companies from Japan. HJPNX is a diversified fund and invests in a variety of assets.

This Sector - Pacific Rim-Equity product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

HJPNX has a Zacks Mutual Fund Rank #1 and three and five-year returns of 20.7% and 14.4%, respectively.

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