Japan: Weekly ETF and CEF Performance

Japanese ETFs trading in the U.S. posted back-to-back weekly gains, but not a bullish advance by any means -- only up a combined average 1.2%.

Similar to last Monday, when the Nikkei 225 gained 1.6% to 17,669 in a post-Golden Week rally for its highest close in a month, it rallied again today, up 0.7% to 17,677.

The question is if it can hold onto the gains, unlike last week.

The N225 is still more than 3.0% off its 52-week and multi-year high of 18,300.39 (intra-day; it closed at 18,215.35) set on Feb. 26. (See chart below: 5/11)

The 10 Japanese ETFs (including 2 CEFs) trading in the U.S. gained a combined average 0.4% last week and are up 1.9% for the year -- underperforming Asia region country-based ETFs by a wide margin.

Here's their combined average return over the past several weeks:

04/27 - 05/04: +0.8%
04/20 - 04/27: -1.7%
04/13 - 04/20: +0.6%
04/05 - 04/13: -0.9%
03/30 - 04/05: +0.7%
03/23 - 03/30: -2.1%
03/16 - 03/23: 3.1%
03/09 - 03/16: -1.9%

See the chart below for more details of last week's and ytd returns.

Click to enlarge chart

Disclosure: The author does not own shares of any funds mentioned in this article.

Vanguard's Pacific Stock ETF (VPL) continues to lead all Japan ETFs year-to-date (+6.5%), helped by its exposure to Australia and Hong Kong last week, in which it gained a second-best 0.9%. [Note: iShares Australia (EWA) is up 20% ytd], Hong Kong [(EWH) ~+8%)] and Singapore [(EWS) ~+21%].

iShares MSCI Japan Index (EWJ), the most actively traded country-based ETF, rose 0.8% last week and is up 2.3% on the year.

iShares S&P/TOPIX 150 (ITF) was the best-performing ETF, gaining 1.2%, doubling its return for the year.

The Japan Smaller Cap Fund (JOF), a closed-end fund, was the only one to post a weekly loss, -0.3%, and is the only loser ytd, -5.8%.

The yen continues to trade near an all-time low against the euro and is holding around the 120 level against the US$. See the chart below of the CurrencyShares Japanese Yen Trust (FXY) ETF, which was launched earlier this year.

For your reference, here's a list of the 10 funds:

iShares MSCI Japan Index (EWJ)
iShares S&P/TOPIX 150 (ITF)
Japan Equity Fund, Inc. (JEQ)
Japan Smaller Capitalization Fund, Inc. (JOF)
SPDR Russell/Nomura Prime Japan (JPP)
SPDR Russell/Nomura SmallCap Japan (JSC)
Vanguard Pacific Stock (VPL)
WisdomTree JP High-Yielding Equity (DNL)
WisdomTree JP SmallCap Dividend (DFJ)
WisdomTree JP Total Dividend (DXJ)

Comments

[Michael Bom...:]

Just curious why you included the Vanguard Pacific. I have a list here of the ETFs/CEFs I calculated my Japan category with, and it's almost exactly the same other than ITF and VPL.

If you want to include Pacific funds, here are some others you might want to add: EPP,APF,RAP,DNH, and DND. Those last two are actually ex-Japan funds too, so you might argue that if you want broader coverage, they should be included before the Vanguard Pacific fund.

2007 May 14 10:11 AM

[Steven Towns:]

Michael, thanks leaving a comment.

VPL is included as a Japan ETF due to its majority exposure to Japan. Japan makes up 72.6% of the fund and 20 of its top 25 holdings are Japanese stocks as of 12/31/06 per Morningstar.

Prior to the WisdomTree and Russell/Nomura ETFs launched last year, VPL was one of the limited ways to get good exposure to Japan via ETF. It has a considerably smaller trading volume than iShares MSCI Japan Index ETF (EWJ), but has significant assets nonetheless.

Note EPP is ex-Japan and thus not included, but I do use it as part of my Asia region iShares weekly updates.

I haven't included other funds such as APF and RAP due to not having a majority composition from Japan.

With the weekly Japan updates I am not necessarily looking for broader coverage at this time, especially given the light trading volume of some of the funds you mention -- and even the existing ones 100% Japan!

In fact, from a regional viewpoint, I think the iShares Asia ETF weekly updates are most relevant given the % of specific market coverage and trading volume.

2007 May 14 10:32 AM

[Michael Bom...:]

Ah, I'd seen the 70% weighting for VPL but not the top holdings distribution, that does make sense. And yes, the liquidity issue on some of these funds does make it hard to figure how accurate a proxy they are, but I figure if you just increase N, any illiquidity-generated premium/discount should average out.

On another note, given the latest producer inflation data out of Japan, what's your stand on the time frame for the next tick up in rates there?

2007 May 14 10:43 AM

[Michael Bom...:]

Steven, if you're interested, I've described a dollar-weighted method of calculating category return that you might be interested in. Basically, this weights each respective ETFs return by its percentage of the total number of dollars traded on the entire category.

2007 May 15 07:28 PM