Exchange-traded funds (ETFs) that offer indexed exposure to international markets can be a prudent investment for investors seeking global diversification. Specifically in Japan the Nikkei 400 Index can offer targeted investment in large-cap and mid-cap Japanese companies. Other leading Japanese indexes include the MSCI Japan Index, the Nasdaq AlphaDEX Japan Index, the FTSE Japan 100% Hedged to USD Index and the Nikkei 225 Index.

We have selected three ETFs that track the performance of the JPX-Nikkei Index 400. This index includes 400 large-cap and mid-cap Japanese equities screened for shareholder-friendly activities, profitability and return on equity. The funds included have assets under management of greater than $3 million. The funds are also managed by two leading international ETF providers, iShares and Deutsche X-trackers. These funds offer investors long portfolio investment options for exposure to the Japanese market. (See also: How to Go Long or Short Japan via ETFs.)

All data is current as of October 31, 2017.

iShares JPX-Nikkei 400 (JPXN)

JPXN is an index fund that seeks to track the JPX-Nikkei Index 400. The Fund provides exposure to large- and mid-cap Japanese stocks screened for shareholder-friendly activities, profitability and return on equity. Top sectors include industrials, consumer discretionary, financials and information technology. JPXN does not employ currency hedging in its investment strategy. It is managed in Japanese yen with daily net asset values generated in U.S. dollars.

Assets Under Management: $94.7 million

Price / Earnings Ratio: 16.57

Price / Book Ratio: 1.60

Distribution Yield: 1.33%

Number of Holdings: 395

Xtrackers Japan JPX-Nikkei 400 Equity ETF (JPN)

JPN tracks the JPX-Nikkei 400 Total Return Index.  The Fund uses an index replication strategy to invest in stocks from the Index. The Index includes large- and mid-cap Japanese stocks screened for shareholder-friendly activities, profitability and return on equity.

Assets Under Management: $11.4 million

Price / Earnings Ratio: N/A

Price / Book Ratio: N/A

Number of Holdings: 390

In May 2017, Deutsche Asset Management closed its hedged version of this fund, the Deutsche X-trackers Japan JPX-Nikkei 400 Hedged Equity (JPNH).

iShares Currency Hedged JPX-Nikkei 400 (HJPX)

This fund uses the JPX-Nikkei 400 Net Total Return USD Hedged Index as its benchmark. This Fund invests in the iShares JPXN ETF with the remainder of the portfolio in cash or derivatives for currency hedging.

Assets Under Management: $3.0 million

Price / Earnings Ratio: 14.69

Price / Book Ratio: 1.56

Distribution Yield: 1.64%

Bottom Line

The Nikkei 400 Index has broad exposure to Japanese companies. These ETFs provide investment vehicles for investors interested in Japanese equities. The Nikkei 400 Index uses a screening methodology, enhancing the quality of large-cap and mid-cap companies in the Index for investors. Due diligence on these funds should be done regularly to ensure portfolio fit. Monitoring Index constituent changes as well as the condition of the Japanese economy and cross-border trade agreements are factors to consider.

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