ETF Talk: Capitalizing on Japan’s Economic Uptick

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

The Bank of Japan released a report on July 12 that revealed the country’s first real signs of economic recovery since 2011. Combined with the continued astonishing rise of the Japanese markets, it may be time to take another bite of the Japanese apple. The exchange-traded fund (ETF) best positioned to tap these recent developments for a profit is iShares MSCI Japan Small Cap Index Fund (SCJ).

This fund seeks investment results which, before fees and expenses, correspond generally to the performance of an index which targets small-cap stocks in multiple industry groups traded primarily on the Tokyo Stock Exchange.

This highly diversified ETF is uniquely positioned to benefit from a general rise in the Japanese economy, as it only has 5.94% of its investments in its top ten holdings. By investing in SCJ, you give yourself a vehicle for investing in this recovery, without the risks associated with pure plays or mostly homogenous ETFs.

While SCJ has gained 18.90% so far this year and currently offers a 2.51% dividend yield, some are wondering how long Japan can keep its upward momentum. However, the policies critical to the recovery and the rise in the Nikkei are likely to stay in effect. With a Japanese upper house election looming next week, the Liberal Democratic Party has a chance to win a majority in both houses of government and greatly increase its inflationary and stimulatory policies, further strengthening Japan’s economy.

SCJ-071713

Stocks do well in inflationary times. This news is great for SCJ, which has its holdings in Japanese small-cap stocks. As previously mentioned, only 5.94% of the fund’s total assets are invested in its top ten individually held companies. The top five of these are United Urban Investment, 0.84%; Advance Residence Investment Corp., 0.74%; Tokyo Tatemona Co., 0.70%; Yokohoma Rubber, 0.68%; and Anritsu Corp., 0.62%.

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SCJ’s sector concentration is also diverse. Its largest sector weightings are consumer cyclical, with 20.40% of this ETF’s assets, and industrials, with 19.51%. They are followed by basic materials, 11.56%; technology, 11.48%; financial services, 10.93%; real estate, 9.71%; consumer defensive, 8.88%; healthcare, 6.01%; communication services, 1.08%; energy, 0.24%; and utilities, 0.21%.

With such a broad offering of both companies and sectors, SCJ is poised to keep profiting from further improvement in the Japanese economy. With these future gains looking likely, I encourage you to take advantage of this ETF’s well-diversified portfolio.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to e-mail me by clicking here. You just may see your question answered in a future ETF Talk.

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