Fri, 11/03/2011 - 17:17
By Koei Imai, head of ETFs at Nikko AM - Japan is working extremely hard to get its economy back on track, and its ETF industry is benefiting as a result. Disclosure is improving, which is boosting passive investment, and Japanese equities are still relatively inexpensive.
However, despite many shares currently trading at or even below book value, a recent poll showed that the Japanese stock market is likely to end 2011 up by roughly 17% on current levels, aided by the rising demand from emerging markets.
The addition of Japanese ETFs to an investment portfolio can provide an effective means for overseas investors to increase their diversification at a low cost, whilst participating in and benefiting from investment opportunities in a region outside of their own.
Overseas investors are already a large segment of the Japanese market, representing 30-40% of the total transaction volume on the Tokyo Stock Exchange. However when it comes to ETFs, language has been a significant entry barrier for many overseas investors, with information only available in Japanese.
As one of Japan's most outward-looking providers, Nikko AM has stolen a march on its competitors, by becoming the first in Japan to offer prospectuses fully translated into English. This is also the reason why Nikko AM has established both a TOPIX ETF and an MSCI Japan ETF. Whilst at first glance this may not appear necessary, given the high correlation of the two indices, we felt it was important to consider the needs of international investors as well as domestic ones; whilst investors in Japan may prefer the TOPIX index, the MSCI is much more widely used by international investment community.
The firm, which currently offers nine different Japanese equity ETFs and won the etfexpress Award for Best Asia Pacific ETF Manager for the second year in a row, was also the first (and is still the only) provider in Japan to offer daily Portfolio Composition Files (PCFs) for almost all of its Japanese equity ETFs; offering transparency much more comparable to that of global standards. These are just some of the factors that we believe are helping us grow ETF assets at above average rates and in terms of brand recognition, be voted number 2 in Japan.
Nikko AM was also the first in Japan to create a dedicated ETF team, focused on investor demand and product development, responding to changes in regulatory structures and operational capabilities.
Our approach is to identify and offer investors products that will improve their asset allocation options, whilst providing efficient cost structures. We believe it is this that will enable us to continue to develop and expand our product range, staying ahead of the curve and our competitors by delivering products which meet investor needs.
Today, we can offer investors a total of 17 different ETFs, covering not only Japanese equities, but also emerging equities, global bonds and single country ETFs – including Japan's first China A Share ETF with full replication.
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