This week, we take a closer look at the Sygnia iTrix MSCI Japan (share code: SYGJP) ETF. The Japanese economy remains one of the largest in the developed world. Japan is the second-biggest holding in the MSCI World Index, as well as the S&P Global 1200 Index. Considering the Japanese market hasn’t recovered from a crash in 30 years, is investment in Japan worth it?
But for Japan, one could argue an index-tracking strategy is fool proof. As we discuss in this episode of The Fat Wallet Show, the Japanese stock market hasn’t recovered to previous levels following a major crash in the 1980s. While other markets tend to recover to pre-crash levels within a few years of a major economic event, the Japanese market was effectively reset at a new, lower level following the crash.
Unprecedented government interventions to save jobs and stimulate the economy after the crash led to a market whose performance wasn’t determined by supply and demand for a while. Instead of companies failing and making way for new, profitable companies, existing companies were propped up to fight another day. While the Japanese market hasn’t recovered to previous levels, investors who invested after the crash essentially bought into the new normal. As a result, they’ve experienced fairly normal developed market behaviour and returns since then.
The MSCI Japan index invests in 320 large- and medium-sized companies listed on the Japanese market. The sectoral split is fairly even, with Industrials (19.69%), Consumer Discretionary (17.65%), Information Technology (13.06%), Health Care (11.81%) and Communication Services (10.46%) leading the charge. Its top 10 constituents include household names like Toyota, Sony, Nintendo and Mitsubishi. While listed in Japan, these companies earn income across the world. Because of the large number of constituents, the top 10 holdings only take up 21.11% of the index. This is significant, because the larger the holdings in a single company, the bigger risk poor performance by that company poses to the performance of the overall index.
According to an MSCI report, low volatility is one of the driving factors of the MSCI Japan index. That means a steady ride for investors who dislike wild price movements in ETFs. Performance-wise, the Sygnia Japan ETF has returned nearly 40% over the past four years. Since the SYGJP is denominated in Japanese Yen, it offers some alternative currency exposure to local investors weary of the dollar. It also explains our superior performance over the past five years, compared to the same index tracked in US dollar.
The chart below depicts what a smooth ride this ETF has offered over the past four years.
While lower volatility and exposure to the Japanese Yen makes this ETF attractive, remember to account for Japanese exposure in broad-market ETFs when deciding how much of your money to invest in Japan.
|ETF name||Sygnia iTrix MSCI Japan ETF|
|Issue date||1 April 2008|
|Total investment cost||0.86%|
|ETF Benchmark||MSCI Japan Index|
|Tax-free savings account||Investment allowed|
|ETF major holdings||Sygnia Japan constituent list|
|Performance 1 year||+25%|
|Performance 3 years||+40.4%|
|Performance since 15 September 2016||+48.5%|
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