What ETFs are available to UK investors?
Exchange traded funds (ETFs) have made investing in the Japanese equity market very easy, as well as low cost. However, Japan’s almost unique currency dynamics make the decision whether to hedge returns or not a significant driver of longer-term returns.
If 'Abenomics' continues, it is expected that the yen will continue to weaken, and therefore a GBP-hedged vehicle may offer better returns. However, if policy changes, and the yen strengthens, then having some currency exposure could protect on the downside.
Here we outline our preferred routes to investing in Japanese assets. All the ETFs below can be bought from just £5 on IG’s share dealing platform. You can check our ETF screener for our full range of ETFs.
iShares Core MSCI Japan IMI UCITS ETF – SJPA
Investors looking for a traditional market cap approach with exposure to the yen should consider this offering from the iShares core range. The MSCI index has exposure to midcap companies too, and the ETF has a low total expense ratio of 0.2%
iShares MSCI Japan Small Cap UCITS ETF – ISJP
It is usually the case that the small cap stock sector performs well in bull markets, but get sold off much harder in bear markets. In this respect, Japan is no different. However, for the more adventurous investor, this ETF could be used as a portion of their allocation. It has a yield of 1.4%, and a total expense ratio of 0.58%.
Db-X-trackers JPX Nikkei 400 UCITS ETF – GBP Hedged - (XDNG)
The Nikkei 400 is quite a new addition to an investor’s universe, having been launched specifically to promote good shareholder values and corporate governance. Each stock is scored on cumulative three year Return on Equity (ROE), cumulative operating profit and market value, and it is hoped that corporates will aspire to being given larger weights as time goes on.
This hedged ETF has a total expense ratio of 0.3%, but investors looking for the unhedged version are well served by the Source JPX-Nikkei 400 (S400) which offers the same exposure but for a slightly cheaper 0.2%.