The Japanese stock market ranks among the very largest in the world. If you want exposure to Japanese stocks but don’t want to pick stocks individually, exchange-traded funds are offer an attractive means of diversifying risk. But which ones should you select?
Depending on your financial aims, you will want exposure to different Japanese ETFs. Some Japanese funds concentrate on small cap stocks while others favor large-cap companies.
Here are five of the best Japanese ETFs:
iShares MSCI Japan (EWJ)
The iShares MSCI Japan Index Fund (EWJ) provides access to the Japanese market in a single trade.
At the time of our research, it had over $22 billion in assets under management and, according to Morningstar, comprises a blend of value stocks and growth stocks.
Generally, it features large cap stocks so investors scouting for small cap stocks or penny stocks will need to look elsewhere.
The EWJ expense ratio is 0.49% which is above the category average of 0.40% but you will typically find international ETFs have slightly higher expense ratios given the extra costs of due diligence and management.
The iShares MSCI Japan Index Fund seeks to track the investment results of the MSCI Japan Index and, at all times, invests at least 90% of its assets in the securities of the underlying index as well as in depositary receipts representing securities of the underlying index.
For the most part, the underlying index comprises stocks traded on the Tokyo Stock Exchange.
WisdomTree Japan SmallCap Dividend ETF (DFJ)
The WisdomTree Japan SmallCap Dividend ETF (DFJ) is a good fit for investors seeking exposure to smaller cap companies.
It is significantly smaller in size than the iShares MSCI Japan Index Fund with approximately $1 billion in assets under management.
For investors who are income-oriented, it provides a nice dividend of 1.56% at the time of our research.
But getting access to a regular dividend comes at a price of a higher expense ratio, which is 0.58% compared to the 0.40% category average.
The investment is designed to track the price and yield performance of the WisdomTree Japan SmallCap Dividend Index (before fees and expenses).
If you are risk-averse, pay attention to the fact that the fund is non-diversified. It comprises dividend-paying and small capitalization companies in Japan.
iShares Currency Hedged MSCI Japan (HEWJ)
The iShares Currency Hedged MSCI Japan (HEWJ) is similar in size to the WisdomTree Japan SmallCap Dividend ETF with approximately $1 billion in assets under management.
The HEWJ expense ratio is 0.49% and it features a blend of growth and value stocks that are primarily large capitalization companies.
The index features stocks primarily traded on the Tokyo Stock Exchange.
And the “hedging” reference in the name of the iShares fund refers to the currency risk inherent in the securities included in the underlying index hedged to the U.S. dollar on a monthly basis.
Deutsche X-Trackers MSCI Japan Hedged Equity (DBJP)
The Deutsche X-Trackers MSCI Japan Hedged Equity (DBJP) has a passive or indexing investment approach designed to correspond to the performance of the underlying index, which tracks the performance of the Japanese equity market while mitigating exposure to ups and downs of currency fluctuations between the Japanese yen and the U.S. dollar.
The DBJP expense ratio is 0.45% and combines growth and value large capitalization stocks.
Like the Deutsche X-Trackers MSCI Japan Hedged Equity and WisdomTree Japan SmallCap Dividend ETF funds, its AUM is much lower than the iShares MSCI Japan Index Fund.
Nevertheless, during our research it held approximately $1.5 billion in assets under management, suggesting good liquidity for traders and investors alike.
Wisdom Tree Japan Hedged Equity (DXJ)
The Wisdom Tree Japan Hedged Equity (DXJ) fund is among the larger Japanese ETFs with approximately $7.5 billion in net assets at the time of our research.
It blends growth stocks and value stocks that are primarily large capitalization companies traded on the Tokyo stock exchange.
However, the fund is non-diversified so risk-averse investors may want to look towards another fund that better suits their capacity for risk.
The Wisdom Tree Japan Hedged Equity expense ratio is 0.48%, which is generally in line with the fees charged by other Japanese index funds.
It is designed, like other hedged equity funds, to neutralize exposure to the Japanese yen in the event forex swings took place relative to the U.S. dollar.