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Top Japanese ETFs for Q4 2022

by SuperiorInvest

Exchange Traded Funds (ETFs) focused on Japan provide investors with exposure to the country’s economic growth and trade profits. According to the latest data available from the World Bank, in 2021 Japan remains the third largest economy in the world, measured by gross domestic product (GDP).

Japan’s economy suffered a major downturn during the COVID-19 pandemic, but is showing signs of recovery. The country’s economy grew by 2.2% in Q2 2022, driven by an increase in domestic consumption of goods and services.The International Monetary Fund predicts that Japan’s GDP will grow by 2.4% throughout 2022.

The country is home to many large, well-known multinational corporations, including Honda Motor Co. Ltd. (HMC) and Sony Group Corp. (SONY). Japan ETFs offer investors the opportunity to profit from the growth of these companies and many other companies.

Key things

  • Japanese stocks have underperformed the broader US stock market over the past year.
  • The Japanese exchange-traded funds (ETFs) with the best annual total returns are DXJ, HEWJ and DBJP.
  • Toyota Motor Corp. is the top holding of the first and third of these funds, while the top holding of the second is the iShares MSCI Japan ETF.

There are 11 different Japanese ETFs that trade in the United States, excluding inverse and leverage effect ETFs as well as funds with less than $50 million assets under management (AUM). These ETFs hold exclusively stocks of domestic companies rather than corporate debt or Japanese government bonds. The iShares MSCI Intl Value Factor ETF (IVLU) is included in some Japanese ETF screens, but is not specifically focused on Japanese stocks, so it is not included in our list.

Japanese stocks, as measured by the MSCI Japan index, have underperformed the broader US stock market over the past 12 months, with a total return of -13.0%, compared to the S&P 500’s total return of -2.5% as of August 17, 2022. The best-performing Japan ETF based on past year performance is the WisdomTree Japan Hedged Equity Fund (DXJ).

We examine three of the best Japanese ETFs below. All numbers below are as of August 18, 2022. In order to focus on the Funds’ investment strategy, the best holdings listed for each ETF exclude cash holdings and holdings purchased with the proceeds of securities lending, except in unusual cases such as an exceptionally large portion of cash.

  • Performance in one year: 13.7%
  • Expense ratio: 0.48%
  • Annual dividend yield: 2.11%
  • Three-month average daily volume: 651,039
  • AUM: $2.0 billion
  • Start date: June 16, 2006
  • Issuer: WisdomTree

DXJ tracks the WisdomTree Japan Hedged Equity Index, which seeks to provide exposure to Japanese equities while neutralizing the impact of fluctuations in the relative values ​​of the Japanese yen and the US dollar. The ETF focuses on Japanese dividend-paying companies, with a preference for exporters. The fund also uses a currency hedging strategy used by its index to remove the impact of changes in the value of the yen. This makes the ETF an attractive option for investors who want exposure to the Japanese stock market, even if it only weakens against the dollar. It has continued to weaken against the US dollar this year alone.

DXJ’s largest exposure is to the industrials sector, followed by consumer staples and financials. He uses a mixed strategy, investing in a combination grow and value shares of mostly large-cap companies. The fund’s three largest holdings are Toyota Motor Corp. (7203: TKS), a global car manufacturer; Japan Tobacco Inc. (2914: TKS), cigarette manufacturer; and Mitsubishi UFJ Financial Group Inc. (8306: TKS), a global financial services holding company.

  • Performance in one year: 7.9%
  • Expense ratio: 0.50%
  • Annual dividend yield: 1.02%
  • Three-month average daily volume: 232,692
  • AUM: $537.9 million
  • Start date: January 31, 2014
  • Issuer: BlackRock Financial Management

HEWJ seeks to track the MSCI Japan Index 100% hedged against the USD. The index is composed of Japanese large- and mid-cap stocks and seeks to mitigate exposure to fluctuations between the value of the Japanese yen and the US dollar. This is the hedged version of the iShares MSCI Japan ETF (EWJ), another popular Japan-focused fund. Industrials, consumer staples and information technology stocks are the three largest parts of the portfolio.

HEWJ’s primary holding is EWJ stock, with over 99.9% of HEWJ’s portfolio being EWJ stock. A very small portion of the portfolio is also transferred to BlackRock Cash Funds Treasury SL Agency shares. EWJ’s three largest holdings include Toyota Motor Corp.; Sony Group Corp. (6758:TKS), manufacturer and distributor of electronic products; and Keyence Corp. (6861:TKS), manufacturer of industrial automation and control equipment.

  • Performance in one year: 7.4%
  • Expense ratio: 0.45%
  • Annual dividend yield: 2.29%
  • Three-month average daily volume: 13,337
  • AUM: $204.4 million
  • Start date: June 9, 2011
  • Publisher: DWS

DBJP tracks the MSCI Japan US Dollar Hedged Index, which is a currency-hedged approximation of the performance of the MSCI Japan Index. The ETF provides exposure to the Japanese stock market while removing the impact of currency fluctuations between the yen and the dollar. This means that US investors have the potential to generate US dollar profits from gains in the Japanese stock market without having to worry about changes in the value of the yen.

DBJP’s largest sector exposure is in industrials, followed by consumer goods and information technology. It follows a mixed strategy of investing in both growth and value stocks of primarily large companies. The fund’s three largest holdings are Toyota; Sony Group; and Keyence.

The comments, opinions and analysis expressed herein are for informational purposes only and should not be construed as individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information contained herein to be reliable, we do not guarantee its accuracy or completeness. The opinions and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analysis contained in our content are provided as of the date of publication and are subject to change without notice. The material is not intended to be a complete analysis of all material facts relating to any country, region, market, industry, investment or strategy.

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