Japan | Nikkei225 | SYGJP

Japan was long a mess for investors (we covered this index back in 2020 and you’ll find that review here if you want a step back in time). It took thirty-five years before it regained the December 1989 highs finally get back earlier this year. I go into what they finally did right in my JSE Direct podcast here.

Since the beginning of 2023 the Nikkei 225 is up some 50% while the local ETF from Sygnia Itrix is up over 40%. The difference between the two return is all about currency (shown in chart below) taking some shine off the returns. The other issue is that while everybody talks about the Nikkei225 index, the main Japanese index, the local ETF actually tracks the MSCI Japan Index.

The MSCI Japan Index tracks 218 Japanese stocks, large and mid-cap. But the Nikkei225 tracks 225 large caps only and is a price weighted index. The only other major price weighted index is the Dow Jones and it simple moves on the price moves of the stocks. So a higher priced stock has more influence than a lower priced stock, even if the lower priced has a larger market cap. It’s an insane way to structure an index, but in both cases it does work.

Currency however remains the real concern. Warren Buffett invested into Japan in August 2020 but he was also concerned about the current moves. So he issued a bond in Japan in Yen to remove currency risk, but we can’t do that.

It’s also an old school economy. Industrials are over 20% of the index, consumer discretionary just under 19% before IT at 14.9% and financials at 12.2%. This in contract to most large cap global indices that have tech as the largest sector followed by financials. Further Japanese tech is very old school, but old school still rocks.

SYGJP top ten as at 31 December 2023

As part of a satellite part of a portfolio it adds nice diversification.

Simon

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At Just One Lap, we are big fans of passive investment using ETFs. In this weekly blog, we discuss ETFs on the local market and the factors you need to consider when choosing an ETF. If you have wondered how one ETF differs from another, this is where you can find out. We explain which index each ETF tracks, what type of portfolio could benefit from holding each ETF, and how the costs will affect your bottom line.