What ETF Investment Tools Can Be Used for Direct Investment in Japan?

Due to its exceptional performance in the market, the Japanese stock market has recently attracted the attention of investors from all over the world. In previous articles, we have shared some ETFs that track the performance of the Japanese market in Hong Kong and the US to help investors make investment decisions.

As previously mentioned, investing through Exchange Traded Funds (ETFs) offers multiple advantages:

Firstly, ETFs have high liquidity, allowing investors to trade them easily at any time during trading hours, similar to buying and selling stocks. This provides flexibility and timely asset allocation.

Secondly, ETFs usually have lower management fees compared to actively managed funds, saving a significant amount of costs and contributing to the accumulation of long-term investment returns. Additionally, ETFs achieve portfolio diversification by replicating a particular index or industry sector, effectively mitigating the risk of individual securities.

Finally, ETFs offer high transparency, as investors can clearly understand the underlying asset allocation, making it easier to manage and monitor portfolio performance.

Therefore, ETFs are an essential part of modern investment portfolio construction, serving as an ideal tool for achieving investment objectives and risk control for both individual and institutional investors.

This would enable investors to have a trading tool available when holding Japanese yen, or when earning yen for long-term investments.

Please follow the following introduction to learn more about this topic.

In the investment landscape of the Japanese stock market, investors can effectively participate and track the overall performance of the Japanese stock market through the convenient tool of Exchange Traded Funds (ETFs). Below are three representative ETF products that directly track Japanese stock market indices. They each target different market benchmark indices and provide investors with diversified market exposure and investment strategies.

With an asset size of 23.46 trillion yen and an average daily trading volume of about 2 million transactions over the past three months, this ETF aims to track the performance of the Japanese stock market, particularly the TOPIX index, providing investors with broad exposure to the Japanese stock market. The ETF's portfolio is mainly composed of Japanese stocks, including constituents of the TOPIX index. The TOPIX index is one of the major indices in the Japanese stock market, including stocks of approximately 2,000 listed Japanese companies, covering various industries and sectors. It is one of the larger ETFs in the Japanese market. The ETF seeks to achieve long-term stable capital appreciation by investing in these stocks.

This ETF has an asset size of approximately 11 trillion yen and an average daily trading volume of about 400,000 transactions over the past three months, tracking the performance of the Nikkei 225 index. The Nikkei 225 index is another major index in the Japanese stock market, including stocks of 225 listed Japanese companies. Compared to the constituents of the TOPIX index, the Nikkei 225 index has a higher concentration in certain industries, consisting entirely of blue-chip stocks. However, its asset size and trading volume are relatively lower.

This ETF has an asset size of approximately 459 billion yen and an average daily trading volume of about 1,000 transactions over the past three months, tracking the JPX-Nikkei 400 index. The index selects 400 companies listed on the Tokyo Stock Exchange with high governance standards and profitability. The screening mechanism for constituents of the index not only considers market capitalization but also emphasizes the quality of corporate management and financial stability, including but not limited to profitability, shareholder returns, corporate transparency, and board structure.

In the face of an increasingly globalized financial market, Japanese investors can also access the vast international market through ETF products issued domestically in Japan. The following three ETF products respectively target the performance of the US stock market, Chinese technological innovation companies, and the global stock market, opening up the door for investors to make cross-border investments.

This is an ETF managed by Mitsubishi Financial Group representing Japan. The investment objective of the ETF is to track the performance of the US stock market, particularly the S&P 500 index, providing investors with exposure to the US stock market. The ETF has an asset size of approximately 55.9 billion yen and an average daily trading volume of 30,000 transactions over the past three months. As of the beginning of 2023, the ETF has grown by approximately 58%.

The China STAR 50 index selects 50 listed companies in the Chinese science and technology innovation sector. The ETF tracks the performance of these Chinese innovative and high-growth potential technology companies, enabling investors to participate in these investments through a single fund product. The ETF has an average daily trading volume of 2,000 transactions over the past three months and an asset size of approximately 393 million yen. It is a small-scale ETF listed in Japan.

This is an ETF managed by Mitsubishi Financial Group representing Japan. The investment objective of the ETF is to track the performance of the MSCI ACWI index, providing investors with exposure to the global stock market. The MSCI ACWI index is a global stock market index compiled by MSCI, including stocks from 23 developed markets and 24 emerging markets, covering most of the market capitalization of the global stock market. The ETF's portfolio mainly consists of constituent stocks of the MSCI ACWI index, aiming to achieve long-term stable capital appreciation through investing in these stocks. The ETF has an average daily trading volume of approximately 20,000 transactions over the past three months and an asset size of approximately 45.6 billion yen. As of the beginning of 2023, the ETF has grown by approximately 42%.

As an innovative financial instrument in the financial market, leveraged ETFs provide investors with the possibility to amplify the effects of market volatility, allowing them to potentially earn higher returns when predicting market direction correctly, but they may also face equal or higher losses.

Managed by Tokai Tokyo Waseda Investment Advisory Co., Ltd., this leveraged ETF tracks twice the daily performance of the Nikkei 225 index, aiming to provide leverage on the index. The asset size is approximately 270.5 billion yen, and the average daily trading volume over the past three months is approximately 2 million transactions. As of the beginning of 2023, the ETF has grown by as much as 148%.

This is a leveraged ETF managed by Tokai Tokyo Waseda Co., Ltd. in Japan. The ETF's portfolio mainly consists of constituent stocks of the Nikkei 225 index, but the investment strategy is to track twice the daily decline, which means that if the Nikkei 225 index falls by 1% on a given day, the net asset value of the ETF will fall by 2%. It is listed on the Tokyo Stock Exchange, and investors can purchase it through securities brokers or online trading platforms. The management fee of the ETF is 0.65%, which is relatively high. The asset size is approximately 47.4 billion yen, and the average daily trading volume over the past three months is approximately 30 million transactions. As of the beginning of 2023, the ETF has decreased by 64.76%.

However, leveraged ETFs use financial derivative instruments such as options and swap agreements to amplify the daily returns of the benchmark index they track. Although these products typically offer 2x or 3x daily returns, they also come with extremely high risks and are not suitable for long-term holding.

Overall, investing in ETFs is like having a key that opens the door to diversified investments. It can capture the potential for returns in an overall rising market and to some extent, diversify the risks of individual securities. However, like all investment tools, ETFs are not a source of risk-free returns. Market volatility, liquidity risk, tracking error, and the rise and fall of specific industries will directly affect investors' returns.

Therefore, wise investors need to have a profound understanding of potential risks and adopt a prudent response strategy while embracing the income opportunities brought by ETFs. After all, only by recognizing the delicate balance between risk and return can investors walk more steadily on the investment path and achieve long-term growth and value preservation of their assets.