Developed market countries from around the world have been gaining overall with improving economic conditions. Japanese stock indexes have outperformed domestic benchmarks during certain years, and owning the Nikkei can be attractive for investors looking to diversify geographically. Improving corporate governance and increasing dividend rates from mature companies in Japan are two things helping equity investment momentum. Investment experts also see potential for the yen to gain in 2020 adding to factors for investment in the Asian developed market country.
- Japan's economy is developed and growing, and owning its benchmark stock index - the Nikkei 400 - can help investors diversify globally.
- Several ETFs are now available that allow U.S.-based investors to get exposure to the Nikkei.
- Keep in mind that investing in foreign assets also can come with currency risk, even though the ETFs are priced in U.S. dollars and traded on American exchanges - unless the ETF is expressly hedged.
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 provide targeted investment in large-cap and mid-cap Japanese companies. Other leading Japanese indexes also include the MSCI Japan Index, the Nasdaq AlphaDEX Japan Index, the FTSE Japan 100% Hedged to USD Index and the Nikkei 225 Index.
Below are 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 three funds included are the largest funds by assets under management managed with a Nikkei 400 index replication strategy. The funds are 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 with some consideration for currency benefits.
Investment and performance data is as of July 7, 2020.
JPXN is an index fund that seeks to track the JPX-Nikkei Index 400. The fund provides exposure to 400 high quality, large- and mid-cap Japanese stocks. 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: $90.6 million
- Price / Earnings Ratio: 15.68
- Price / Book Ratio: 1.28
- Distribution Yield: 1.54%
- Number of Holdings: 391
- YTD return: -5.50%
JPN tracks the JPX-Nikkei 400 Total Return Index. The Fund uses an index replication strategy to invest in stocks from the Index. The Fund does not use currency hedging in its investment strategy.
- Assets under Management: $24 million
- Price / Earnings Ratio: 13.98
- Price / Book Ratio: 1.10
- Number of Holdings: 399
- YTD Return: 12.4%
Note that in May 2017, Deutsche Asset Management closed its currency-hedged version of this fund, the Deutsche X-trackers Japan JPX-Nikkei 400 Hedged Equity (JPNH).
This fund uses the JPX-Nikkei 400 Net Total Return USD Hedged Index as its benchmark. The fund seeks to replicate the Index’s holdings and return. It invests the majority of its assets in the iShares JPXN ETF. The fund also invests in currency hedged securities included in the Index such as foreign currency forward contracts to minimize currency risk between the Yen and US Dollar.
- Assets under Management: $2.9 million
- Price / Earnings Ratio: 15.85
- Price / Book Ratio: 1.29
- Distribution Yield: 1.57%
- Number of Holdings: 1
- One Year Return: -9.49%
The Nikkei 400 Index is one of the broadest most high-quality indexes for investment in Japanese companies. These ETFs provide investment vehicles for investors seeking to capitalize on potential for continued momentum 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 since investment in Japanese equities involves risks associated with international investing that may change over time.