Rolle im Portfolio
The UBS ETF MSCI Japan UCITS provides equity exposure to the largest companies in Japan, one of the biggest economies on the globe, and could therefore be considered for use as a core component of a well-diversified portfolio. However, given its narrow geographic exposure, this ETF is probably best utilised as a tactical or satellite holding within a diversified portfolio. Before considering an investment in this ETF--either as a 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.
The MSCI Japan index is well diversified at the stock level, with top constituent Toyota representing around 6% of its value. However, the index is relatively more concentrated at the sector level, with three sectors, namely consumer discretionary, financials and industrials, accounting for about 19-21% of its value each.
Fundamentale Analyse
The Japanese economy suffered for decades under deflation, a rising yen, corporate deleveraging, and weak political leadership; all weighing on the stock market as well. Over the trailing 20-year period, the MSCI Japan Index underperformed the MSCI World Index by an annualised 7.5%, measured in base currency.
However, over the trailing 3-year period, Japanese equities outperformed global equities by an annualised 3.6%. The stock market benefited from the implementation of the so-called “Abenomics” in 2013, passing a $142 billion stimulus package focused on job creation and infrastructure projects. The new economic strategy is aimed to encourage private investment and end deflation.
While Abenomics is expected to revive and boost the economy in the near future, it fails to address more significant long-term challenges like a huge government debt standing at 240% of GDP, a shrinking and aging population and weak consumption. In addition, the IMF now sees some risk that the policy measures could prove less effective than expected in terms of supporting growth, failing to increase nominal wages, sustaining the recent increase in inflation expectations, or boosting private investment.
In particular, demographics are one of the country’s biggest challenges. People aged over 65 represent about a quarter of the overall population. The ballooning debt is partly due to expanding health and social costs associated with this development.
Besides the consumption tax hike in April 2014 to 8% and a potential further hike to 10% in 2015, Prime Minister Shinzo Abe is also seeking to encourage more women to join the workforce to bolster the economy and raise money.
Furthermore, the Yen plays a vital role in the health of the economy. On the one hand, the country is heavily export dependent, with companies like Toyota or Sony generating 70-80% of their revenue abroad. On the other hand, Japan lacks natural resources and as such relies on commodity imports, in particular energy. Prior to Fukushima, Japan generated 30% of its electrical power from nuclear reactors but they have all since been disconnected from the grid. Higher import costs due to rising energy prices and a weakening Yen have contributed to a ballooning deficit.
Despite the economy stagnating for almost two decades, the industrial sector – one of the largest in the index – is still one of the most advanced and innovative in the world, with the automobile industry being particularly strong.
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. The index is biased towards three sectors, namely consumer discretionary, financials and industrials, each of which representing between 19% and 21% of the index. The technology sector accounts for 10-12% of the index´s value. On an individual stock level, Toyota represents 5-6% of the index´s value, followed by Mitsubishi UFJ Financial Group and Softbank, with a 2-3% weighting each.
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, limiting the potential for tracking error that index sampling might introduce. UBS engages in securities lending and may lend up to 50% of its assets to generate revenues and thus help improve the fund’s tracking performance. The fund lent out 7.10% on average over the 12 months period ending July 2014 and received net lending returns of 0.027%. The maximum the fund lent out at any given time over the last year was 19.5%. 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 counterparty 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. Cash received as dividends from the underlying stocks is immediately reinvested in the index constituents. If the amount of cash received doesn’t allow the manager to buy all the required stocks, he can use an overdraft facility provided by the fund’s custodian, namely State Street. Akin to a “credit line”, this facility essentially allows the manager to maintain exposure to the full index at all time by investing in the index in excess of 100% of the fund’s net asset value (NAV). This cash management technique helps to mitigate tracking error.
Gebühren
The total expense ratio (TER) for this fund is 0.39%. This lies in the middle 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
As of writing, there are many ETFs offering exposure to Japanese equities. A like-for-like alternative would be the db x-trackers MSCI Japan ETF, which uses synthetic replication, but charges a slightly higher TER of 0.50%. In addition, various providers offer currency-hedged versions for Euro-, Pound Sterling-, US Dollar-, and Swiss Franc-investors.
Investors preferring the better known, albeit not as broad, Nikkei 225 Index as benchmark for Japanese stocks can make use of a range of ETFs offered by ComStage, db x-trackers and iShares. The cheapest products are from ComStage and db x-trackers, both charging a TER of 0.25%.
The cheapest fund offering equity exposure to Japan is the Vanguard FTSE Japan ETF. The fund uses physical replication and levies a TER of 0.19%.
