After underperforming for several months, Japan stocks have gained momentum lately on hopes of a stronger government ahead of a ruling party leadership race and a general election in November.
The resignation of Prime Minister Yoshihide Suga has opened the door for the new government, which will likely unveil an economic package to support pandemic-hit businesses and families. As such, the move has spurred bets for strong economic recovery by the end of the year. Notably, the Japan Topix Index climbed to the highest level since April 1991 and has been outperforming its Asian peers in recent weeks.
The gains were also driven by record earnings and rising vaccination rates. Per Reuters, the forward EPS of MSCI Japan has risen 30% so far this year, outpacing other major markets including the United States, giving Japanese shares an edge after their underperformance earlier this year (read: 5 Top-Ranked ETFs That Outperformed in August).
Meanwhile, vaccinations have surged from just 3% of Japan’s population at the start of June to 45% population by the end of August. The world’s third-largest economy is expected to surpass the United States, which currently has fully vaccinated around 52% of its population, in the next few weeks. Additionally, about 90% of seniors in Japan are fully vaccinated, more than in many countries that started their campaigns much earlier.
Further, Japan’s economy roared back to life in the second quarter with GDP rising 0.3% on a quarter-over-quarter basis after a 0.9% drop in the first quarter. The economy grew 1.3% in an annualized basis on the reopening of businesses but is slower than the other developed economies given that a sudden rise in COVID-19 cases took a toll on growth. Japan is battling its largest-ever surge in COVID-19 cases, with an increase of 20,000 in new infections daily.
Given the higher expectation of a leadership change and the resultant economic growth, investors seeking to participate in the stock rally should definitely invest in Japan ETFs. While most ETFs have been delivering handsome returns in the past week, we have highlighted the ones that are crushing the broad market fund SPY and the ultra-popular Japanese fund EWJ (see: all Developed Asia-Pacific ETFs here).
First Trust Japan AlphaDEX Fund FJP
This fund employs an AlphaDEX methodology to select stocks from the NASDAQ Japan Index. This is easily done by tracking the NASDAQ AlphaDEX Japan Index and the holds a basket of 100 stocks that are widely spread out across various components with each security holding less than 2.7% of assets. Industrials is the top sector with 33.1% share, while consumer discretionary and information technology round out the next two with double-digit exposure each. FJP has AUM of $38.9 million and an average daily volume of around 2,000 shares. Expense ratio comes in at 0.80%. The fund has risen 4.1% in a week and carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook
Xtrackers Japan JPX-Nikkei 400 Equity ETF JPN
This fund offers exposure to 400 high-quality, capitally-efficient Japanese companies that are screened though indicators such as return on equity, cumulative operating profit and market capitalization. It follows the JPX-Nikkei 400 Net Total Return Index, charging investors 9 bps in annual fees. The ETF has accumulated $18.2 million in its asset base and trades in a paltry volume of 2,000 shares. It has gained 3.4% in a week and carries a Zacks ETF Rank #3 with a Medium risk outlook.
iShares JPX-Nikkei 400 ETF JPXN
This ETF targets Japanese companies that have been screened for profitability and return on equity by tracking the JPX-Nikkei Index 400. It holds well-diversified 395 stocks in its basket with key holdings in industrials at 24.1%. Consumer discretionary, information technology and health care receive the next three spots with double-digit allocation each. The product has AUM of $87.8 million and trades in an average daily volume of 1,000 shares. It charges 48 bps in annual fees and has added 3.3% in a week. The fund has a Zacks ETF Rank #3 with a Medium risk outlook (read: 5 Tech Stocks Leading the Latest Nasdaq ETF Rally).
iShares Currency Hedged JPX-Nikkei 400 ETF HJPX
This is a hedged version of JPXN and offers exposure to broad-based Japanese equities while mitigating exposure to fluctuations between the value of the Japanese yen and U.S. dollar. It has amassed $3.5 million in its asset base and sees a meager volume of just 300 shares a day. It charges 48 bps in fees per year from investors and has gained 3.3% in a week. HJPX has a Zacks ETF Rank #3 with a High risk outlook.
Goldman Sachs (NYSE:GS) ActiveBeta Japan Equity ETF GSJY
This ETF follows the Goldman Sachs ActiveBeta Japan Equity Index, which selects stocks with four distinct performance attributes: good value, strong momentum, high quality and low volatility. It holds 281 stocks in its basket with AUM of $15.2 million and an average daily volume of 2,000 shares. The product has added 3.3% in a week and has a Zacks ETF Rank #3.
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SPDR S&P 500 ETF (SPY): ETF Research Reports
iShares MSCI Japan ETF (EWJ): ETF Research Reports
iShares JPXNikkei 400 ETF (JPXN): ETF Research Reports
First Trust Japan AlphaDEX ETF (FJP): ETF Research Reports
Goldman Sachs ActiveBeta Japan Equity ETF (GSJY): ETF Research Reports
iShares Currency Hedged JPXNikkei 400 ETF (HJPX): ETF Research Reports
Xtrackers Japan JPXNikkei 400 Equity ETF (JPN): ETF Research Reports
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