🗾 Navigating Nippon: A Comprehensive Guide to the EWJ ETF

ETF Mavericks! It's Thursday, and you know what that means - another thrilling edition of your favourite, the ETF UNO newsletter! Today, we're embarking on an exhilarating journey through the dynamic universe of ETFs. Get ready to unlock a treasure trove of opportunities that could send your portfolio soaring. Our star today? The iShares MSCI Japan ETF, famously known as EWJ. There's a lot to unpack with this Japan-focused fund, so grab a cup of coffee and let's get started!

What is EWJ?

The iShares MSCI Japan ETF (EWJ), as the name implies, is an ETF that invests in Japanese stocks. It's designed to track the MSCI Japan Index, which captures large and mid-cap representation of the Japanese market.

• 📈 One-Trade Gateway: Owning EWJ provides instant exposure to over 300 Japanese companies in one fund; you get diversified access to giants like Toyota, Sony, Softbank, Nintendo and much more!

• 🏢 Diverse Company Spectrum: EWJ focuses on large and mid-cap equities, which covers 85% of the capitalisation of the Japanese market.

• 💡 Market Insight Tool: Ideal for strategising around Japanese market trends, providing different investing options in USD or Euro.

In a nutshell, EWJ offers targeted exposure to equities from the world's 3rd largest economy. It provides a simple, liquid, and low-cost avenue for investors seeking to incorporate Japanese stocks into their portfolios.

🏯 Why Japan? Why Now?

Japan's economy is revving up, making it an attractive investment destination. Under Prime Minister Fumio Kishida's leadership, Japan has implemented stimulative fiscal and monetary policies to boost growth. This strategic approach aims to reverse decades of deflation and stagnation.

The outlook for 2023 is bright. GDP growth could accelerate to 2.5-3.0%. Corporate earnings are projected to increase by over 15%. The Bank of Japan's accommodative stance has softened the yen, improving export competitiveness. The impact is evident. The Nikkei 225 surged over 10% this year as investor confidence grew. Capital is flowing into Japanese stocks as their potential gets recognized.

The economic policies, earnings momentum and attractive valuations make Japan hard to ignore. Now may be an opportune time to explore Japanese equities.

Top Holdings of EWJ

As of November 2023, some of the top holdings of EWJ are:

1. Toyota Motor Corporation: 🚗 More than just cars, Toyota's commitment to innovation keeps it at the forefront of the automotive industry.

2. Sony Group Corporation: 📺Global leader in entertainment and technology, known for its wide range of electronic products and media services.

3. SoftBank Group Corp: 🌐Venturing beyond telecommunications, SoftBank's investment prowess is reshaping the global tech landscape.

4. Nintendo Co., Ltd.:🎮 Pioneer in interactive entertainment behind iconic gaming franchises.

5. Hitachi, Ltd.:🔌Powerhouse in electronics and engineering, pioneering in various technology sectors.

6. Mitsubishi UFJ Financial Group, Inc.: 🏦 Mitsubishi UFJ is a global financial titan, offering a wide range of banking and financial services.

7. Keyence Corporation: 🔬 Keyence excels in industrial automation, enhancing efficiency and precision across industries.

8. Sumitomo Mitsui Financial Group, Inc.: 💳 Leading Japanese banking group offering diverse financial services worldwide.

9. Recruit Holdings Co., Ltd.: 💼 Innovator in HR and recruitment services revolutionising employment search and hiring.

10. Daikin Industries, Ltd.: ❄️ Leader in air conditioning and refrigeration, focusing on energy-efficient solutions.

These companies collectively showcase the breadth and depth of Japan's industrial and technological excellence, reflecting the varied and vibrant nature of the EWJ ETF. They present investors with a distinct chance to engage with the core of Japan's economic power.

EWJ at a glance

Asset Class: Equity

Underlying Index: MSCI Japan Index

Geographical Focus: Japan (with international exposure from multinational companies)

Sector Focus: All major sectors

Expense Ratio: 0.50% (as of last data point)

Dividend Yield: 0.90% (as of last data point)

Distribution Frequency: Semi-Annual

Historical Performance

Historically, EWJ has been a mirror reflecting the ups and downs of Japan's economy. Over the past decade, it's shown resilience and growth, underlining the potential of Japanese equities. Its performance, while subject to market fluctuations, has often rewarded patient investors with steady returns.

2023 has been a remarkable year for the Japanese market, as mentioned above, EWJ has climbed 7% year-to-date.

ETF Radar View

The radar chart below shows the general characteristics of the ETF:

Top 3 Reasons to Invest in EWJ

1. Japan Focused: EWJ provides targeted exposure to Japanese equities rather than just broad international or Asia funds. This makes it an appealing option for investors seeking specific allocation to Japanese equities.

2. Stable Market: Japan's market, as the world's third-largest stock market, is known for its stability and can serve as a haven during times of global volatility.

3. Growth Potential: With Japan's focus on technological innovation and economic reform, EWJ holds the potential for growth.

Top 3 Reasons Not to Invest in EWJ

1. Sector Concentration: While diversified, EWJ is still heavily exposed to industrials and consumer cyclicals, which can experience greater volatility. This increases sector-specific risks.

2. Currency Risk: Fluctuations in the yen-dollar exchange rate can impact returns for international investors.

3. Future Challenges for Japan: Japan still faces well-known demographic and debt challenges that could limit upside over the long-term. Japanese equities have notably underperformed global stocks over the past decade. There is no guarantee that current optimism will last.

🌸 EWJ: Blossoming Profits

Diving into EWJ, we see it's a gateway to Japan's growing economy and market. Packed with top Japanese firms, EWJ is a clear path to tap into Japan's growth. But it's not all smooth sailing. EWJ faces risks like yen changes and market swings, and Japan's own demographic hurdles. Still, for those eyeing Japanese stocks, EWJ is a strong pick with its stability, diversity, and growth prospects.

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DISCLAIMER: This newsletter is for educational purposes only and does not constitute financial advice.