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 could be entering a period of political uncertainty after Shinzo Abe stepped down as prime minister in September due to health concerns after nearly eight years in office, the longest uninterrupted run ever for a Japanese leader.
- Japanese stocks underperformed the broad U.S. equity market over the past year.
- The ETFs with the best 1-year trailing total return are JPXN, FLJP, and BBJP.
- The top holding of the first of these ETFs is Sony Corp., and the top holding of the other two is Toyota Motor Corp.
There are 12 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 13.9% over the past 12 months compared to the Russell 1000's total return of 19.5%, as of November 27, 2020. The best-performing Japan ETF, based on performance over the past year, is the iShares JPX-Nikkei 400 ETF (JPXN). We examine the top 3 best Japan ETFs below. All numbers below are as of November 30, 2020.
- Performance over 1-Year: 13.3%
- Expense Ratio: 0.48%
- Annual Dividend Yield: 1.71%
- 3-Month Average Daily Volume: 2,643
- Assets Under Management: $95.3 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 391 holdings, 24% are based in Japan's industrials sector, followed by 15% in the consumer discretionary sector, and 12% in the information technology (IT) sector. The fund's top three holdings include Sony Corp. (6758:TKS), a multinational conglomerate that manufactures consumer and professional electronics equipment and devices; Keyence Corp. (6861:TKS), a manufacturer of industrial automation and inspection equipment; and Nintendo Co. Ltd. (7974:TKS), a manufacturer of electronic home entertainment products such as video games and gaming consoles.
- Performance over 1-Year: 13.3%
- Expense Ratio: 0.09%
- Annual Dividend Yield: 1.84%
- 3-Month Average Daily Volume: 126,986
- Assets Under Management: $568.3 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. Over 21% of the fund's 515 holdings are based in the industrials sector, followed by an 18% allocation to consumer discretionary stocks, and 13% to the IT sector. The fund's top three holdings include Toyota Motor Corp. (7203:TKS), a multinational automobile manufacturer; Sony; and SoftBank Group Corp. (9984:TKS), a holding company whose subsidiaries offer telecommunication services.
- Performance over 1-Year: 12.6%
- Expense Ratio: 0.19%
- Annual Dividend Yield: 2.08%
- 3-Month Average Daily Volume: 631,346
- Assets Under Management: $6.1 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 growth and value stocks. Of the fund's 368 holdings, nearly 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, Sony, and SoftBank Group.