Analyse: UBS ETF MSCI Japan

Der letzte "Pfeil" muss sitzen! Die geldpolitischen Maßnahmen der Bank of Japan haben am Aktienmarkt gezündet; Investoren hoffen nun auf Reformen der Regierung in Tokio für den Kursschub 2014.

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Rolle im Portfolio

The UBS MSCI Japan ETF provides equity exposure to one of the biggest economies on the globe and could therefore be considered for use as a core component of a well diversified portfolio to gain exposure to the world’s third-largest economy. However, before considering an investment in this ETF--either as core building block or a tactical tool--investors should be aware of existing exposure to Japan through other holdings (for example, Japanese equities comprise nearly 10% of the MSCI World Index) to avoid unintentionally overweighting Japanese shares.

Taking a close look at the track record of the Japanese stock market over the last 20 years, one might wonder whether owning Japanese equities as part of a buy-and-hold strategy would be of any benefit. The MSCI Japan Index returned about 3% of its value over that period, compared to a 222% increase in the MSCI World Index. After the Japanese real estate and stock market meltdown in the 1990s, the Central Bank hesitated to intervene. By the time the Central Bank made a concentrated effort to stimulate the economy, flooding the market with trillions of yen and decreasing interest rates, the economy was already in a deflationary spiral and consumers had lost faith. Low interest rates from there on made the Yen an attractive target for carry traders, helping to strengthen the currency and ultimately hurting exports. However, the stock market rallied since November 2012 while the Yen weakened on the back of a new approach by newly selected Prime Minister Shinzo Abe.

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Fundamentale Analyse

The Japanese stock market posted in 2013 its best year since 1972. The Nikkei 225 Index returned 56.7%, benefiting from the implementation of the so-called “Abenomics”. International investors pumped billions of dollars into Tokyo’s stock exchange last year, betting on a catch up with international stock markets - Japan’s stock market has underperformed those of other developed markets for years. The loose monetary policy also benefited export driven companies as the Yen lost about 21% versus the Euro and the US-Dollar.

Most equity analysts forecast another good year for Japanese stocks, expecting earnings to rise by 17% in 2014 after expanding by 40% in 2013. It is also argued that the current money base would not be sufficient and that the central bank will further loosen monetary policy to achieve its 2% inflation target by spring 2015. Escaping the long-lasting deflation is the cornerstone of a return to a normal economic environment. The consumer price index hit a new five-year high in November, reaching 1.2%. In addition, a government survey indicated that almost 90% of consumers expect prices to continue rising in months to come. In particular, further Yen depreciation could fuel inflation, as import goods become more expensive. Companies with a strong pricing power should benefit most from higher inflation.

Elsewhere, the sector pillar of the Abenomics may disappoint in 2014. The approved economic stimulus package, worth €39bn, is only half the size of 2013 and is only designed to compensate for the increase of the consumption tax from 5% to 8% in Q2 2013. Besides, the government aims to increase this tax gradually to 10% by October 2015. Many consumers bought big ticket items ahead of the initial tax increase. This may detract on private consumption growth going forward.

However, 80% of blue-chip companies expect the tax increase not to hurt the nation’s recovery. For starters, the expected higher tax revenue should help funding a rising social welfare bill in a country facing a severe demographic challenge. Japan’s increasingly aged, and overall declining, population has a strong bearing on a public debt burden already more than double the country’s GDP and the largest amongst developed countries. Both the International Monetary Fund and the Bank of Japan have supported the tax increase in light of the ballooning debt burden. Over the long-term, the shrinking population is a key risk to consumer demand and could make it difficult to sustain a non-deflationary environment.

The third pillar of the Abenomics, establishing a special economic area, could become victim of bureaucracy as experiences in the past have shown. Big structural reforms are therefore not expected.

All risks considered, the Japanese economy should still benefit from the positive momentum. UBS forecast GDP to expand by 1.7% in 2014. Hosting the Olympic Games in 2020 could further support the economy going forward, as more infrastructure spending will be necessary. However, Nomura estimates that construction spending on stadia and other facilities over the next eight years will account for only 0.3% of GDP.  

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The MSCI Japan Index includes approximately 320 of the largest stocks of publicly-traded companies based in Japan. Components must meet minimum criteria for liquidity, foreign ownership restrictions, and a waiting period for newly-listed stocks. The securities are weighed by free-float adjusted market capitalisation. Because closely held firms will have a smaller piece of their aggregate market capitalisation floated on public exchanges, the free float adjustment serves to ensure the underlying liquidity of the holdings is superior relative to a pure market capitalisation weighting. The index is reviewed four times a year. As of writing, the index is biased towards consumer discretionary (22% of the index’s value), closely followed by financials (21%) and industrials (20%).

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The UBS MSCI Japan ETF uses physical replication techniques to track the performance of its benchmark, the MSCI Japan index. Given that the index’s components are all very liquid, the fund holds them all in proportion to their weighting in the index, eliminating the potential for tracking error that index sampling might introduce. The fund may lend up to 50% of its assets to generate revenues to also help minimise tracking error. This practice introduces counter-party risk as the party to whom the securities are lent may default, and it is left to investors to decide whether or not the additional income generated through securities lending is adequate compensation for the level of risk entailed. To minimise this risk, UBS restricts securities lending to pre-defined counterparties, holds collateral in a ring-fenced third-party account with State Street Bank, and marks the collateral's value to market daily. UBS and third-party agents such as Clearstream Banking and Euroclear manage the securities lending process, including monitoring collateral values. The ETF distributes dividends twice a year. Movements in the benchmark in excess of returns on cash during the period between when the fund receives dividends and the date it distributes them will result in 'cash drag', which can be a source of tracking error.

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The total expense ratio (TER) for this fund is 0.37%. This lies in the lower of the range for ETFs tracking Japanese equities. Other potential costs associated with holding this fund which are not included in the TER include rebalancing costs, bid-ask spreads and brokerage fees.

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There are two other Japanese large-capitalisation indices popular with ETF providers, the Nikkei 225 and the TOPIX. There is little to choose from between the MSCI Japan and TOPIX indices, but the Nikkei 225 has a far smaller allocation to financial services (about 1%) and utilities (less than 1%) with the difference spread amongst multiple sectors. The iShares Nikkei 225 ETF uses physical replication and levies a TER of 0.50%. The iShares MSCI Japan Monthly EUR Hedged ETF has the greatest trading volume of any ETF tracking that index. The Lyxor Japan TOPIX ETF uses synthetic replication and has the greatest trading volume of any ETF tracking that index and charges a TER of 0.45%.

There are five ETFs tracking the TOPIX, including one from EasyETF, one from ComStage, two from Lyxor (one trading in pounds sterling and one trading in euros) and one Euro hedged version from RBS. While ComStage's ETF charges a low TER of 0.45%, Lyxor's euro-denominated ETF has the greatest daily average on-exchange trading volume, making it a less expensive choice--in terms of the total cost of ownership--for many investors.

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Über den Autor

Gordon Rose, CIIA, CAIA,

Gordon Rose, CIIA, CAIA,  war von 2011 bis 2014 Fondsanalyst bei Morningstar.