db x-trackers MSCI Japan Index UCITS ETF 1C (EUR) | DBXJ |
par
Lee Davidson25/03/2013
Stratégie d’investissement
The db x-trackers MSCI Japan ETF provides broad exposure to Japanese equity markets. Japan represents one of the largest, most developed, and richest economies in the world. To put it in perspective, Japan accounts for nearly 9% of global GDP. Roughly half of all Japanese international trade is conducted with its Pacific neighbors indicating its prominence as both regional supplier and end-consumer. Despite its regional economic importance, Japan has suffered stagnant economic growth in recent years. Looking ahead, Japan faces strong headwinds in the short-term stemming from its massive deficit and trade disruptions with China due to territorial disputes. In the long-term, however, the outlook is slightly more positive as Japan is well-positioned to capitalise from burgeoning emerging market growth.
At the time of this writing, the fund's reference index has maintained moderate levels of correlation to the MSCI World (72%) and the STOXX Europe 600 (66%) over the past ten years. Moderate correlation levels signal that this ETF offers potential diversification benefits within an existing equity allocation. Be warned, however, correlation levels have risen in recent years and historical diversification benefits may not be as significant as they once were.
Given its narrow country focus, however, this ETF is best utilised as a tactical or satellite holding within an already well-diversified portfolio. However, before investing in this fund, we suggest investors check their portfolio’s for existing exposure to Japan. Japan, as one of the largest economies in the world, accounts for significant weightings in global equity funds and Asia-focused funds in particular. Japanese equities can comprise 15% to 25% of a typical global equity portfolio, and Japan can comprise about half of a typical Asian equity portfolio (using the MSCI World, MSCI EAFE, and MSCI AC Asia indices as benchmarks).
Analyse fondamentale
Despite having applied massive amounts of fiscal and monetary stimulus, Japan continues to trudge along a difficult road towards economic well-being. Over the past two decades, Japan's gross public debt has skyrocketed to more than 200% of total GDP. With 20% of the population over the age of 65, Japan's social security spending has been a significant contributor to this deficit, but persistent weak economic growth has also served to reduce tax revenues as a percentage of GDP to levels last seen in the mid-1980s. To close the gap, Japan's parliament has passed a significant hike to the consumption tax, currently the lowest amongst OECD countries at 5%. The new tax regime will increase the consumption tax to 8% in 2014 and 10% in 2015. In order to pass the bill, Japan's Prime Minister Noda had to promise to hold early elections and was defeated by Shinzo Abe. Shinzo Abe, Japan’s new Prime Minister, has advocated for an economic platform characterised by aggressive monetary and fiscal stimulus, inflation target of 2%, depreciation of the yen, and structural reforms designed make improvements to Japan’s stagnant economy.
Under this new regime, energy prices still remain a chief concern for Japan. Currently, Japan's energy costs are 40% higher than the US and nearly 2.5x times higher than South Korea due to a dearth of domestic energy sources. The post-tsunami nuclear disaster contributed to the escalating domestic energy prices. Furthermore, as international pressure mounts on Iran, Japan has announced its intention to limit its dependence on Iranian oil–which currently accounts for 10% of its total oil consumption. Last year, Japan slashed its Iranian oil imports by nearly 80% to comply with Western sanctions and more cuts are scheduled for the coming months. Coupled with the EU's decision to completely embargo Iranian oil, the competition to secure supplies from alternative oil suppliers, like Saudi Arabia, has been intensified.
Arguably, the most significant issue affecting Japanese corporations for the past few years is the appreciation of the yen. Over the past five years, the Japanese yen has appreciated 2.5% on an annualised basis against the US dollar. For Japan's large-cap exporters, the yen’s rise has been a nightmare, weighing on their ability to remain competitive abroad. In an attempt to address this problem, the Bank of Japan (BOJ) has maintained an ultra-easy monetary policy stance with its benchmark overnight target rate set to 0.1%. In October, the BOJ reiterated its intent to buy longer-term government bonds, increasing its asset-purchase programme by 11 trn yen. The BOJ has enacted three such monetary easing schemes in the past six months stating that its goal is to see inflation reach 2%. Thus far, the policies appear to be partially successful as the yen has fallen 15.2% relative to the US dollar in the past six months.
Looking ahead, the IMF maintained its economic forecasts, and it expects the Japanese economy to resume a moderate recovery, forecasting 1.2% growth in 2013. Growth is expected to come from a rise in exports, a pick-up in reconstruction-related demand, and new plans for stimulus.
Construction de l’indice
The CS ETF (IE) on MSCI Japan tracks the free-float market capitalisation weighted MCSI Japan index, which intends to represent 85% of the publicly available total market capitalisation of the Japanese equity market. The index is composed of Japanese securities across the four major Japanese exchanges: Tokyo Stock Exchange, Osaka Stock Exchange, JASDAQ, and Nagoya Stock Exchange. At the time of this writing, the index has 317 constituents. Top components are Toyota (5.9%), Mitsubishi Tokyo (3.1%), Honda (2.6%), and Sumitomo (2.3%). Due to the characteristics of index constituents, the index is relatively sector and style neutral with the largest sectors being consumer discretionary (20.7%), financials (20.3%), and information technology (19.8%).
Construction du fonds
The db x-trackers MSCI Japan TRN Index ETF uses synthetic replication to give its owners exposure to the performance of the MSCI Japan index. To achieve this return, the fund engages in a fully-funded swap with parent company, Deutsche Bank (Aa3, A+, AA). The fund transfers cash from investors to Deutsche Bank which in turn posts collateral in a segregated account in Deutsche Bank’s name and pledged in favor of the fund. For equity ETFs, db x-trackers accepts a mix of sovereign and investment grade bonds and highly liquid blue-chip stocks from OECD countries as collateral. Haircuts are applied to the securities posted as collateral and as such collateral levels are maintained between 107.5% and 120% of the fund’s NAV at the end of each business day. As of this writing, collateral levels hover around 109.7% of NAV. The collateral basket is held in a ring-fenced account at State Street Bank Luxembourg and reviewed daily by State Street Global Advisors. While the funded swap structure does not imply direct fund ownership of the collateral basket, db x-trackers’ ETFs are entitled by Luxembourg law to enforce the pledge and sell collateral assets without prior notice to Deutsche Bank. Unlike many European ETF providers, db x-trackers does not engage in securities lending, which helps to mitigate some counterparty risk. The fund is available in five distinct currency denominations: Euros, U.S. Dollars, Pounds Sterling, Japanese Yen, and Swedish Krona. Naturally, the index is most closely associated with Japanese Yen.
Frais
The db x-trackers MSCI Japan TRN Index ETF charges a total expense ratio (TER) equal to 0.50%, which is comparable to other ETFs tracking Japanese equity indices.
Alternatives
There is no shortage of ETFs available offering exposure to large cap Japanese equities. The primary differentiating factor amongst them will be liquidity and replication methods as most of the ETFs available track the MSCI Japan index. Amundi offers the second-most liquid synthetic replicator of the MSCI Japan TRN index in terms of average daily volume. To benefit from improved tracking, investors take on some level of counterparty risk inherent in the synthetic replication structure. This fund levies a TER of 0.45%.
For investors who prefer physical replication, the iShares MSCI Japan is the most popular offering tracking the MSCI Japan index in terms of assets under management. iShares charges a TER equal to 0.59% for the fund. iShares does engage in securities lending within the fund which poses some exposure to counterparty risk but has the potential to improve tracking performance.
Those looking for exposure to small cap Japanese equities may consider CS ETF (IE) on MSCI Japan Small Cap or iShares MSCI Japan Small Cap. Expense ratios for these funds are 0.58% and 0.59%, respectively. Both these funds are very thinly traded.
