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Buffett Announces Stakes in Japan Trading Firms: ETFs to Watch

Sweta Jaiswal, FRM

On his 90th birthday, the ‘Oracle of Omaha’ announced about Berkshire Hathaway’s (BRK.A) more than 5% stake in each of the five leading Japanese trading companies, namely, Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co., and Sumitomo Corp. The billionaire investor also said the holdings were acquired approximately over a 12-month period by making regular purchases on the Tokyo Stock Exchange. Going on, the investment is valued at nearly $6.25 billion based on the trading houses’ closing prices on Aug 28, per a CNBC article.

The Japanese trading companies which are also known as “sogo shosha” are conglomerates that import almost everything varying from energy and metals to food and textiles into Japan and also provide services to manufacturers, according to a CNBC article.

This investment is in line with Buffett’s favorite strategies. Making them good candidates for value investing, the stocks of Marubeni, Sumitomo, Mitsubishi and Mitsui are trading below their book value with the exception of Itochu. Commenting on the investment, Thanh Ha Pham, an analyst at Jefferies Japan Ltd said that “these trading companies generate strong cash flow, they pay out a lot of dividends and they have businesses that can’t be easily replicated,” per a Bloomberg article. Japan’s popularity for trusted accounting might have also attracted Buffett, according to Thanh Ha Pham, as stated in a Bloomberg article.

Some of these companies also have attractive amounts of cash on hand and the investment strategy as a whole allows Buffett to reduce dependence on the U.S. economy. In this regard, Hiroki Takashi, chief strategist at Monex in Tokyo said that, “since Buffett’s portfolio is becoming heavily skewed to Apple, maybe he was looking for something complete the opposite of Apple,” per a Reuters article.

Also, the investment is believed to have helped Buffett reduce Berkshire’s cash pile that ended June at a record $146.6 billion, according to a Reuters article. Moreover, Berkshire mentioned intentions to hold investments for the long term, with the possibility to expand its holdings in any of the companies up to a maximum of 9.9%, depending on price (per a CNBC article).

Overall, Buffett said that “I am delighted to have Berkshire Hathaway participate in the future of Japan and the five companies we have chosen for investment. The five major trading companies have many joint ventures throughout the world and are likely to have more of these partnerships. I hope that in the future there may be opportunities of mutual benefit,” per a Bloomberg article.

ETFs to Watch Out For

Of late, Berkshire seems to be looking out for the commodities space. Going by a Bloomberg article, valuations trailing the broader stock market have been observed in the sector in recent years. Falling commodities prices and an investor rotation toward technology sector, especially during the pandemic, can be largely behind the lower valuations in the sector, per the article. In fact, Berkshire’s $4-billion agreement to buy most of Dominion Energy’s natural gas pipeline and storage assets in July is another example of its inclination toward the commodities space, per a Bloomberg article. Berkshire’s latest investment can also bring investors’ attention to investments in the world’s third-largest economy.

Against this backdrop, let’s look at some ETFs that belong to the commodities space or provide exposure to Japan’s economy:

Invesco DB Commodity Index Tracking Fund DBC

This fund seeks to track changes, whether positive or negative, in the level of the DBIQ Optimum Yield Diversified Commodity Index Excess Return. It’s AUM is $1.11 billion and total expense ratio, 0.88% (read: 4 ETF Zones Making the Most of a Weakening Dollar).

iShares Commodities Select Strategy ETF COMT

The fund seeks total return by providing investors with broad commodity exposure. It’s AUM is $207.6 million and total expense ratio, 0.48%.

United States Commodity Index Fund USCI

The fund is an exchange-traded security that is designed to track, in percentage terms, the price movements of the SummerHaven Dynamic Commodity Index Total Return. It’s AUM is $113 million and total expense ratio, 1.03%.

iShares MSCI Japan ETF EWJ

This fund tracks the investment returns of the MSCI Japan Index. It’s AUM is $9.99 billion and expense ratio, 0.49%.

JPMorgan BetaBuilders Japan ETF BBJP

The fund seeks investment results that closely correspond to the Morningstar Japan Target Market Exposure Index. It’s AUM is $5.11 billion and expense ratio, 0.19%.

 WisdomTree Japan SmallCap Dividend Fund DFJ

The fund seeks to track the investment results of dividend-paying small-cap companies in the Japanese equity market. It’s AUM is $239.4 million and expense ratio, 0.58%.

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iShares Commodities Select Strategy ETF (COMT): ETF Research Reports
 
iShares MSCI Japan ETF (EWJ): ETF Research Reports
 
WisdomTree Japan SmallCap Dividend ETF (DFJ): ETF Research Reports
 
Invesco DB Commodity Index Tracking ETF (DBC): ETF Research Reports
 
United States Commodity ETF (USCI): ETF Research Reports
 
JPMorgan BetaBuilders Japan ETF (BBJP): ETF Research Reports
 
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