Japan: Weekly ETF and CEF Performance

The Nikkei 225 had a nice finish to a mostly flat week. Most importantly, it finally exceeded the 18,000 level for the first time in almost seven years. The broader TOPIX was no laggard, also eclipsing an important psychological level (1,800), trading at a 15 year high.

See directly below for a one year chart of the N225 as of Friday's (2/23) close.

The 10 Japanese ETFs/CEFs trading in the U.S. returned 0.86% on average last week, compared to their 3.58% average return two weeks ago. Still, in a two week period that's nearly a 4.5% average gain.

The SPDR Russell/Nomura SmallCap Japan (JSC) fund was the top performer at +2.31%, adding to its 3.99% weekly gain two weeks ago. The Japan Smaller Capitalization Fund Inc. (JOF), once again lagged, taking up the bottom at -1.01%, versus +0.36% two weeks ago. iShares MSCI Japan Index (EWJ), the most actively traded country ETF, gained 0.87% (vs. 4.48% two weeks ago).

Click to enlarge chart

Disclosure: The author owns iShares Japan call options.

Comments

[Andrew Heilman:]

Does the premium in JOF not concern anybody? In a world of ETFs trading at NAV why would JOF have a +15% premium? I guess JOF management must be vastly superior to the overall index funds that are available?

Can anyone shed some light?

2007 Feb 26 06:10 PM

[Steven Towns:]

Andrew,

Good question and +15% premium is definitely a signal to beware! As of Friday's close it trades at a 7.8% premium (per Morningstar; CEFA shows a 10% premium as of 2/28 close).

Note ETFs don't always necessarily trade at NAV. I've seen at least 0.5% deviation/premium with some Japan ETFs, granted they have rather thin trading volume, but this is minor compared to double-digit premiums not uncommon with CEFs.

I've noticed country CEFs, esp. Japan, get ahead of themselves when there's a lot of foreign investors piling money in the country, which to this day really moves the market and spurs domestic buying. The same is also true when foreigners take profit (or get spooked as they are now and pull out).

If you are investing, then look for low, to no premium, but if you are trading, then you'll have to play the momentum and assume there'll be premium to pay as others are buying as well.

Hope this helps.

Disclosure: I do not own shares of JOF.

2007 Mar 02 10:18 PM