Japan is the world's second-largest economy, but has been struggling of late. Japan is also difficult to penetrate in the sense that their culture remains distinct from the West, and stock ownership is not the same as in other developed countries.
On top of this, the country has been rocked by the tsunami and nuclear power plant disaster, which has put futher strain on the economy. However, when considering it in the light of Europe, it may be worth considering investments in Japan as diversification from the US.
David Sterman, writing for Street Authority, recommended three stocks, and I decided to evaluate their performance as part of an equity portfolio to determine whether it might be time to consider Japanese companies.
- Mitsubishi UFJ Financial Group (NYSE:MTU), The largest bank, which has been under pressure but is generating solid earnings.
- Toyota Motor (NYSE:TM) the world's largest automaker, which has seen its reputation tarnished but is still a leader in automotive thinking and technology.
- Canon (NYSE:CAJ), which is right behind HP in printers and has strong camera and copier brands.
So we will take these three equities and compare them against our reference dividend-bearing ETF portfolio.
|Asset||Fund In This Portfolio|
|REAL ESTATE||ICF (iShares Cohen & Steers Realty Majors)|
|FIXED INCOME||TIP (iShares Barclays TIPS Bond)|
|Emerging Market||VWO (Vanguard Emerging Markets Stock ETF)|
|US EQUITY||DVY (iShares Dow Jones Select Dividend Index)|
|US EQUITY||VIG (Vanguard Dividend Appreciation ETF)|
|INTERNATIONAL EQUITY||IDV (iShares Dow Jones Intl Select Div Idx)|
|High-Yield Bond||HYG (iShares iBoxx $ High Yield Corporate Bd)|
|INTERNATIONAL BONDS||EMB (iShares JPMorgan USD Emerg Markets Bond)|
- 3 Bargain Japanese Stocks to Consider -- Total of $10K invested equally in each stock
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
- Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)
Portfolio Performance Comparison
|Portfolio/Fund Name||1-Year AR||1-Year Sharpe||3-Year AR||3-Year Sharpe||5-Year AR||5-Year Sharpe|
|Retirement Income ETFs Tactical Asset Allocation Moderate||1%||7%||9%||76%||7%||54%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||0%||0%||15%||87%||2%||6%|
|3 Bargain Japanese Stocks to Consider||-12%||-50%||7%||26%||-11%||-37%|
The table tells its story of woe for just about all Japanese companies. If there is such a thing as bad luck, these equities seem to have had it in spades. Despite this, these companies are likely to be long term survivors are are in markets that are not going to go away any time soon.
The more detailed analysis and graphs give you a visual view of the volatility.
I don't think that these stocks are for the average retirement portfolio as it is hard to know when there will be light at the end of the Japanese tunnel, and there are other companies that offer dividends that are likely to be a better bet. However, these are strong companies and worth watching to see when the upswing come, rather than asking if it will ever come.
Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.