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 Group Corp. (SONY). Japan ETFs offer investors the opportunity to profit from the growth of these businesses, as well as many other companies. Japan is now more than mid-way through its first year since Shinzo Abe stepped down from his role as prime minister 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 underperformed the broad U.S. equity market over the past year.
- The ETFs with the best 1-year trailing total return are IVLU, DXJ, and DBJP.
- The top holding of the first of these ETFs is British American Tobacco PLC, and the top holding of the other two funds is Toyota Motor Corp.
There are 10 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 underperformed the broad U.S. equity market with a total return of 35.5% over the past 12 months compared to the S&P 500's total return of 50.0%, as of May 6, 2021. The best-performing Japan ETF, based on performance over the past year, is the iShares Edge MSCI Intl Value Factor ETF (IVLU). We examine the best 3 Japan ETFs below. All numbers below are as of May 12, 2021.
- Performance over 1-Year: 45.0%
- Expense Ratio: 0.30%
- Annual Dividend Yield: 1.76%
- 3-Month Average Daily Volume: 403,455
- Assets Under Management: $903.4 million
- Inception Date: June 16, 2015
- Issuer: BlackRock Financial Management
IVLU tracks the MSCI World ex USA Enhanced Value Index, which gauges the performance of large- and mid-cap stocks with specific value characteristics and relatively low valuations from a range of developed markets across the world. The ETF is not exclusively focused on the Japanese equity market, but Japan is the country that receives the largest allocation by far. The fund also provides exposure to the U.K., France, Germany, Italy, and a number of other developed countries outside the U.S. The ETF is most heavily weighted toward the financial, industrial and consumer discretionary sectors. IVLU invests primarily in large- and mid-cap value stocks. The fund's top three holdings include British American Tobacco PLC (BATS:LON), a U.K.-based manufacturer of cigarettes, tobacco, and other nicotine products; Novartis AG (NOVN:SWX), a Switzerland-based pharmaceutical company; and Toyota Motor Corp. (7203:TKS), a Japan-based automobile manufacturer.
- Performance over 1-Year: 35.5%
- Expense Ratio: 0.48%
- Annual Dividend Yield: 2.25%
- 3-Month Average Daily Volume: 367,803
- Assets Under Management: $1.8 billion
- Inception Date: June 16, 2006
- Issuer: WisdomTree
DXJ tracks the WisdomTree Japan Hedged Equity Index, which seeks to provide exposure to Japanese equities while also neutralizing the impact of fluctuations in the relative values of the Japanese yen and U.S. dollar. The ETF focuses on stocks of Japanese companies that pay dividends and Japanese exporters. The fund also employs the currency hedging strategy used by its index to strip out the impact of changes in the yen's value. This makes the ETF an attractive option for investors who think the yen may weaken against the dollar, but still want exposure to Japan's equity market. The fund's largest exposure is in the industrial sector, followed by consumer discretionary and financials. It uses a blended strategy, investing in a mix of both value and growth stocks of mostly large-cap companies. The fund's top three holdings include Toyota; Mitsubishi UFJ Financial Group Inc. (8306:TKS), a global financial services holding company; and Sumitomo Mitsui Financial Group Inc. (8316:TKS), a multinational banking and financial services company.
- Performance over 1-Year: 31.7%
- Expense Ratio: 0.46%
- Annual Dividend Yield: 2.33%
- 3-Month Average Daily Volume: 11,927
- Assets Under Management: $201.0 million
- Inception Date: June 9, 2011
- Issuer: Deutsche Bank
DBJP tracks the MSCI Japan U.S. Dollar Hedged Index, which represents a currency-hedged approximation of the performance of the MSCI Japan Index. The ETF provides exposure to the Japanese equity market while stripping out the impact of currency fluctuations between the yen and the dollar. That means that U.S. investors can generate U.S. dollar profits on gains in the Japanese equity market without having to worry about changes in the value of the yen. The fund's largest sectoral exposure is in industrials, followed by consumer discretionary and information technology. It follows a blended strategy of investing in both growth and value stocks of primarily large-cap companies. The fund's top three holdings include Toyota; SoftBank Group Corp. (9984:TKS), a multinational holding company primarily engaged in communication and Internet-related businesses; and Sony Group Corp. (6758:TKS), a multinational manufacturer of electronics products and related solutions.
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