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Japan ETFs in Spotlight as Economy Beats Growth Estimates

Sweta Jaiswal, FRM

Japan’s better-than-expected economic growth numbers have provided some relief to investors amid global economic slowdown and trade gyrations. Japan’s economy grew at an annualized 1.8%  in the third quarter of 2019, comparing favorably with the preliminary numbers of 0.2% annualized growth. Growing for the fourth consecutive quarter, Japan’s economy surpassed the median market forecast of 0.7% growth (read: Japan's Preliminary Q3 GDP Data Disappoints: ETFs in Focus). 

What’s Driving the Upside?

Japan’s economy witnessed strong support from increased capital expenditure and private consumption in the third quarter. Moreover, Marcel Thieliant, senior Japan economist at Capital Economics, commented that “the main reason for the upward revision was that non-residential investment jumped by 1.8% on-quarter instead of the preliminary estimate of 0.9%.” Analysts are also of the opinion that solid investment from non-manufacturers like retailers was a reason.

There was a 0.5% rise in the private consumption level that makes around 60% of GDP and compares favorably with the preliminary reading of a 0.4% gain.

Analysts are also of the opinion that the numbers might be reflecting some impact of front loading due to increased purchases before October tax hike and typhoon damage.

Will the Momentum Stay?

It is believed that strong domestic demand was a major economic growth driver in the third quarter of 2019. However, increased business and household spending  just before the October tax hike might dent demand in the fourth quarter of 2019. Also, disappointing data sets involving worse-than-expected October household expenditures and retail sales figures are pointing toward slowing consumption levels. Meanwhile, it is worth noting that Japan’s cabinet passed a $122-billion fiscal package recently to support slowing growth.

ETFs in Focus

Against this backdrop, investors can keep a tab on Japan ETFs like iShares MSCI Japan ETF EWJ, JPMorgan BetaBuilders Japan ETF BBJP, WisdomTree Japan SmallCap Dividend Fund DFJ and Franklin FTSE Japan ETF FLJP.

EWJ

This fund tracks the investment returns of the MSCI Japan Index. It comprises 324 holdings. The fund’s AUM is $14.58 billion and expense ratio, 0.47%. The fund has returned 19.7% year to date (read: November ETF Asset Report).

BBJP

This fund tracks the investment returns of the Morningstar Japan Target Market Exposure Index. It comprises 376 holdings. The fund’s AUM is $4.59 billion, while the expense ratio stands at 0.19%. The fund has returned 20.3% year to date (read: Japan ETFs Rally on BoJ's Hints of Easing in October).

DFJ

This fund tracks the investment returns of the WisdomTree Japan SmallCap Dividend Index. It consists of 764 holdings. The fund’s AUM is $467.9 million and the expense ratio, 0.58%. The fund has gained 17.3% year to date.

FLJP

The fund tracks the performance of the FTSE Japan Capped Index. It comprises 506 holdings. The fund’s AUM is $222.6 million and the expense ratio, 0.09%. The fund has gained 18.6% year to date.

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WisdomTree Japan SmallCap Dividend Fund (DFJ): ETF Research Reports
 
iShares MSCI Japan ETF (EWJ): ETF Research Reports
 
JPMorgan BetaBuilders Japan ETF (BBJP): ETF Research Reports
 
Franklin FTSE Japan ETF (FLJP): ETF Research Reports
 
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