Rolle im Portfolio
The UBS MSCI Japan ETF provides equity exposure to one of the biggest economies on the globe and could therefore be considered for use as a core component of a well diversified portfolio to gain exposure to the world’s third-largest economy. However, before considering an investment in this ETF--either as core building block or a tactical tool--investors should be aware of existing exposure to Japan through other holdings (for example, Japanese equities comprise nearly 10% of the MSCI World Index) to avoid unintentionally overweighting Japanese shares.
Taking a close look at the track record of the Japanese stock market over the last 20 years, one might wonder whether owning Japanese equities as part of a buy-and-hold strategy would be of any benefit. The MSCI Japan Index lost about 15% of its value over that period, compared to a 280% increase in the MSCI World Index. After the Japanese real estate and stock market meltdown in the 1990s, the Central Bank hesitated to intervene. By the time the Central Bank made a concentrated effort to stimulate the economy, flooding the market with trillions of yen and decreasing interest rates, the economy was already in a deflationary spiral and consumers had lost faith. Low interest rates from there on made the Yen an attractive target for carry traders, helping to strengthen the currency and ultimately hurting exports.
The index is well diversified with little concentration in specific stocks. Its top holding is Toyota representing 7.2% of its value. The index’s top sector allocation is currently consumer discretionary, representing 20% of the index’s value. Given this high degree of diversification across individual names, the ETF is best used if the investor believes in a broad-based improvement in the Japanese economy as the country moves through a rebuilding period.
Fundamentale Analyse
For Euro-denominated portfolios, Japan’s stock market continues to underperform those of other developed markets. Despite surging 21.5% in 2012 in local currency terms, the MSCI Japan NR Index returned only 6.5% as measured in Euro due to a weakening Yen. By way of comparison, the S&P 500 Index and the EURO STOXX 50 Index have gained 13.4% and 18%, respectively, in 2012; both measured in Euro.
The country has long suffered under deflationary pressure but the newly elected Prime Minister Shinzo Abe announced aggressive steps to weaken the yen, raising the inflation target and introducing structural reforms. And in fact, the currency lost over 10% versus the Euro since mid-November when markets already expected Shinzo Abe to regain power. The snap-election, which was called in mid-November, also lifted the Japanese stock market by around 6% in the final weeks of 2012. The new government under Shinzo Abe is pushing the Bank of Japan towards a more aggressive monetary easing by moving the inflation target from 1% to 2%. Whether or not the independent central bank will act remains to be seen. However, as Japan has had six prime ministers over the last six years, harsh but necessary reforms are difficult to implement for any government. Shinzo Abe himself lasted barely a year at his first stint as prime minister in 2006.
Going forward, a weakening currency is expected to support the export-driven economy. Nomura Securities expect that corporate earing should rise as much as 20% compared to a year earlier if the dollar is around ¥80 and 30% if the Yen weakens to ¥90 per USD. In addition, a weaker Yen versus the Korean won is also very critical as both countries compete in key industries; hence a strong Yen would be a disadvantage for Japanese export companies.
Over the last few years, industrials, the largest index sector represented in the index, suffered under the strong yen. Since mid-2008, the yen has appreciated by over 25% against the USD, by almost 50% against the Euro and by almost 30% against the South Korean won. In particular auto makers have struggled to compete on the basis of price with their US, German, and South Korean rivals due to the yen’s strength. Toyota, the largest index constituent, is affected the most as it still manufactures over 40% of its global volume in Japan. As a result, companies are increasing their efforts to move their production abroad. This could ultimately have a negative impact on Japanese employment.
However, the consumer sector, another crucial sector of the Japanese economy, has done well so far this year. Also, as weakening global demand has suppressed exports, domestic demand continues to benefit from reconstruction-related activities. Strong domestic demand and possible wage growth could also help the country to break out of its long-running deflationary trend.
Generally, market participants are bullish for 2013 as they see Japanese stocks to remain undervalued and underexposed to international investors according to the Wall Street Journal. Therefore, a fundamental reweighting by international investors could lead to billions of Euros flooding the Tokyo stock exchange where foreign investors already account for two-thirds of the daily trading.
Indexkonstruktion
The MSCI Japan Index includes approximately 320 of the largest stocks of publicly-traded companies based in Japan. Components must meet minimum criteria for liquidity, foreign ownership restrictions, and a waiting period for newly-listed stocks. The securities are weighed by free-float adjusted market capitalisation. Because closely held firms will have a smaller piece of their aggregate market capitalisation floated on public exchanges, the free float adjustment serves to ensure the underlying liquidity of the holdings is superior relative to a pure market capitalisation weighting. The index is reviewed four times a year. As of writing, the index is biased towards industrials (20% of the index’s value), closely followed by financials (20%) and consumer discretionary (20%).
Fondskonstruktion
The UBS MSCI Japan ETF uses physical replication techniques to track the performance of its benchmark, the MSCI Japan index. Given that the index’s components are all very liquid, the fund holds them all in proportion to their weighting in the index, eliminating the potential for tracking error that index sampling might introduce. The fund may lend up to 50% of its assets to generate revenues to also help minimise tracking error. This practice introduces counter-party risk as the party to whom the securities are lent may default, and it is left to investors to decide whether or not the additional income generated through securities lending is adequate compensation for the level of risk entailed. To minimise this risk, UBS restricts securities lending to pre-defined counterparties, holds collateral in a ring-fenced third-party account with State Street Bank, and marks the collateral's value to market daily. UBS and third-party agents such as Clearstream Banking and Euroclear manage the securities lending process, including monitoring collateral values. The ETF distributes dividends twice a year. Movements in the benchmark in excess of returns on cash during the period between when the fund receives dividends and the date it distributes them will result in 'cash drag', which can be a source of tracking error.
Gebühren
The total expense ratio (TER) for this fund is 0.52%. This lies in the upper of the range for ETFs tracking Japanese equities. Other potential costs associated with holding this fund which are not included in the TER include rebalancing costs, bid-ask spreads and brokerage fees.
Alternativen
There are two other Japanese large-capitalisation indices popular with ETF providers, the Nikkei 225 and the TOPIX. There is little to choose from between the MSCI Japan and TOPIX indices, but the Nikkei 225 has a far smaller allocation to financial services (about 1%) and utilities (less than 1%) with the difference spread amongst multiple sectors. The iShares Nikkei 225 ETF uses physical replication and levies a TER of 0.50%. The iShares MSCI Japan Monthly EUR Hedged ETF has the greatest trading volume of any ETF tracking that index. The Lyxor Japan TOPIX ETF uses synthetic replication and has the greatest trading volume of any ETF tracking that index and charges a TER of 0.50%.
There are five ETFs tracking the TOPIX, including one from EasyETF, one from ComStage, two from Lyxor (one trading in pounds sterling and one trading in euros) and one Euro hedged version from RBS. While ComStage's ETF charges a low TER of 0.45%, Lyxor's euro-denominated ETF has the greatest daily average on-exchange trading volume, making it a less expensive choice--in terms of the total cost of ownership--for many investors.
