How to gain access to top Japanese companies

SIYABULELA NOMOYI, Head: Index Management, Sygnia Group

For more than half a century, the Japanese economy has been one of the biggest and most advanced in the world, built on the growth of local companies that have successfully manufactured and exported high-quality goods across the globe.

These corporations include household names such as Toyota, Sony, Mitsubishi, Nintendo and Panasonic – market leaders in their respective industries for many years. These firms have maintained their positions through high levels of spending on research and development to keep them at the forefront of technological advances.

The Sygnia Itrix MSCI Japan ETF provides investors with access to a diverse range of these companies through a single fund that holds exactly the same shares that make up the MSCI Japan Index, which covers all of the country’s largest listed businesses.

Understanding the Sygnia Itrix MSCI Japan ETF

The Sygnia Itrix MSCI Japan ETF gives investors broad exposure to the Japanese market. It covers over 300 large- and mid-cap companies listed on the Tokyo Stock Exchange that together make up more than 85% of the total value of the market.

Its largest sector exposure is to industrial companies, which include firms that produce everything from machinery to rubber, glass and ceramics, followed by consumer goods, information technology and financials.

The fund is highly diversified, with the largest holding, Toyota, being just 4% of the total portfolio. This makes it far less concentrated than South African index funds, which are dominated by a few very large stocks.

The advantages of the Sygnia Itrix MSCI Japan ETF

The top Japanese companies have been producing quality goods for decades; their brands are well recognised and used across the world.

Investors in the Sygnia Itrix MSCI Japan ETF will therefore gain exposure to stocks with strong revenue streams that earn their profits in many different markets and are thus not dependent on the performance of a single economy.

As this ETF is listed on the JSE and can be bought and sold in rand, South African investors get access to this international exposure at a low cost, without having to take money offshore.

The MSCI Japan Index is recognised as a barometer of the Japanese economy, so, as the holder of the Sygnia MSCI Japan Index ETF, investors will essentially track the Japanese equity markets.

How does the Sygnia Itrix MSCI Japan ETF fit into a portfolio?

The Sygnia Itrix MSCI Japan ETF allows investors to diversify outside of South Africa to reduce their country-specific exposure and to protect themselves against the devaluation of the rand. As it only covers the Japanese stock market, however, it should be used within the broader international component of a diversified portfolio.

The fund is fully invested in the stock market, so it can be volatile in the short term and will be affected by currency movements. Investors should thus be prepared to hold this ETF for at least five years.

How to access the Sygnia Itrix MSCI Japan ETF

The Sygnia Itrix ETFs are available through Sygnia’s Alchemy investment platform and can be bought in the same way as unit trusts, providing investors with ease of access. Our ETFs can also be invested in through any stockbroker in South Africa if you have an existing stockbroking or personal share portfolio account.

Key features of the Sygnia Itrix MSCI Japan ETF

• Index tracked: MSCI Japan Index

• Total expense ratio: 0.86%

• Fund size: R710 million

Performance (annualised):

3 years: 4.4%

5 years: 8.3%

10 years: 10.3%

Top holdings:

Toyota Motor Corp.

Softbank Corp.

Sony Corp.

Mitsubishi UFJ Financial Group

Keyence Corporation

Takeda Pharmaceutical Co Ltd

Sumitomo Mitsui Financial Group Inc.

KDDI Corp

Honda Motor Co Ltd

Nintendo Co Ltd

Sector allocation:

Industrials: 21.3%

Consumer discretionary: 18.2%

Information technology: 11.1%

Financials: 10.7%

Healthcare: 8.8%

Telecommunication services: 5.6%

Consumer staples: 8.9%

Materials: 5.8%

Other: 7.5%

30 June 2019