Japan’s Steady Performance To Continue

Also, the corporate sector is in solid shape according to the Ministry of Finance’s corporate statistics report for the fourth quarter of 2020. Corporate sales and profits were improving, particularly in manufacturing. Another difference from the previous bubble period is that there are no indications of overly optimistic growth expectations leading to a buildup in excess capacity.

Japan’s corporate governance reform should also be noted. In 2018, the Japan Exchange Group revised Japan’s Corporate Governance Code to encourage more sustainable corporate growth and increased corporate value by, among other things, lowering the large proportion of cross-shareholdings by firms. One sign that this reform measure is helping to encourage capital inflows is the $6 billion Berkshire Hathaway invested in five Japanese trading companies last August. Changing corporate governance significantly, however, will take time, as it requires a change in culture.

Among the twenty US-listed ETFs options for investing in Japan’s equities, the iShares JPX-Nikkei 400 ETF, JPXN, selects companies based on metrics that measure efficiency in the use of capital and profitability as well as qualitative factors such as governance and reporting standards. Over the past 12 months, JPXN returned 29.4%, essentially the same as EWJ did. The Xtrackers Japan JPX-Nikkei 400 Equity ETF, JPN, tracks the same index; and its expense ratio is only 0.09%, compared with 0.48% for JPXN and 0.51% for EWJ. But JPN’s assets under management thus far total only $16.6 million, much less than is the case for the other two ETFs. Yet its etf.com implied liquidity measure is 4 in a 1–5 range, the same as for JPXN. The measure for EWJ is 5.

We continue to maintain the Japan ETF, EWJ, positions in our International and Global ETF Portfolios.

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Disclosure: The author does not have any of the ETFs mentioned in this note in his personal investments.

Disclaimer: The preceding was provided by Cumberland Advisors, Home Office: One ...

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