Exchange-traded funds (ETFs) focused on Japan provide investors with exposure to the country's economic growth and business profits. Japan has one of the largest economies in the world, despite having suffered a financial crisis in 1991, a subsequent "lost decade" of sluggish growth, and continued struggles with deflationary pressures. The country is home to many large, well-known multinational corporations, including Honda Motor Co. (HMC) and Sony Corp. (SNE). Japan ETFs offer investors the opportunity to profit from the growth of these businesses, as well as many other companies. Japan is now in a period of political transition after Shinzo Abe stepped down as prime minister in September 2020 due to health concerns after nearly eight years in office, the longest uninterrupted run ever for a Japanese leader. Mr. Abe was succeeded by Yoshihide Suga, his close aide and preferred successor. Mr. Suga has signaled that he plans to maintain the former prime minister's core policies.
- Japanese stocks matched the performance of the broad U.S. equity market over the past year.
- The ETFs with the best 1-year trailing total return are FLJP, BBJP, and JPXN.
- The top holding of the first two ETFs is Toyota Motor Corp., and the top holding of the third ETF is SoftBank Group Corp.
There are 11 distinct Japan ETFs that trade in the U.S., excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). These ETFs solely hold stocks of domestic companies rather than corporate debt or Japanese government bonds. Japanese equities, as measured by the MSCI Japan Index, have performed on par with the broad U.S. equity market with a total return of 24.5% over the past 12 months compared to the S&P 500's total return of 24.5%, as of February 26, 2021. The best-performing Japan ETF, based on performance over the past year, is the Franklin FTSE Japan ETF (FLJP). We examine the top 3 best Japan ETFs below. All numbers below are as of March 1, 2021.
Franklin FTSE Japan ETF (FLJP)
- Performance over 1-Year: 31.0%
- Expense Ratio: 0.09%
- Annual Dividend Yield: 1.50%
- 3-Month Average Daily Volume: 124,227
- Assets Under Management: $592.9 million
- Inception Date: November 2, 2017
- Issuer: Franklin Templeton Investments
FLJP tracks the FTSE Japan Capped Index, which provides exposure to large- and mid-cap Japanese equities. The ETF is focused on the mid-to-large-cap segment of the Japanese equity market. It follows a blended strategy, investing in a mix of both growth and value stocks. Nearly 22% of the fund's 513 holdings are based in the industrials sector, followed by a 19% allocation to consumer discretionary stocks, and 13% to the information technology (IT) sector. The fund's top three holdings include Toyota Motor Corp. (7203:TKS), a multinational automobile manufacturer; SoftBank Group Corp. (9984:TKS), a holding company whose subsidiaries offer telecommunication services; and Sony Corp. (6758:TKS), a multinational conglomerate that manufactures electronics equipment and devices.
- Performance over 1-Year: 30.7%
- Expense Ratio: 0.19%
- Annual Dividend Yield: 1.10%
- 3-Month Average Daily Volume: 1,494,724
- Assets Under Management: $8.2 billion
- Inception Date: June 15, 2018
- Issuer: J.P. Morgan
BBJP tracks the Morningstar Japan Target Market Exposure Index, an index primarily consisting of stocks traded on the Tokyo and Nagoya stock exchanges. The ETF is focused on Japanese large-cap equities, and follows a blended strategy of investing in both value and growth stocks. Of the fund's 354 holdings, 22% are industrials stocks, followed by a 19% allocation to consumer discretionary stocks, and 13% are based in the IT sector. The fund's top three holdings include Toyota, SoftBank, and Sony.
- Performance over 1-Year: 30.3%
- Expense Ratio: 0.48%
- Annual Dividend Yield: 1.23%
- 3-Month Average Daily Volume: 6,444
- Assets Under Management: $89.9 million
- Inception Date: October 26, 2001
- Issuer: iShares
JPXN tracks the JPX-Nikkei Index 400, an index designed to gauge the performance of large- and mid-cap Japanese equities that have been screened for profitability and return on equity (ROE). The ETF follows a blended strategy, investing in a mix of value and growth stocks. Of the fund's 394 holdings, 24% are in the industrials sector, followed by 15% in consumer discretionary, and 13% in IT. The fund's top three holdings include SoftBank; Sony; and Mitsubishi UFJ Financial Group Inc. (8306:TKS), a holding company that provides a range of financial and investment services.
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