Top 3 ETFs to Track the Nikkei 400 in 2020

Developed market countries from around the world have been gaining overall with improving economic conditions. Japanese stock indexes have outperformed domestic benchmarks during certain years, and owning the Nikkei can be attractive for investors looking to diversify geographically. Improving corporate governance and increasing dividend rates from mature companies are two things helping equity investment momentum in Japan.

Key Takeaways

Japan’s economy has been steadily developed and growing, and owning its benchmark stock index—the Nikkei 400—can help investors diversify globally.
Three exchange-traded funds (ETFs) are now available that allow U.S.-based investors to get exposure to the Nikkei.
Keep in mind that investing in foreign assets also can come with currency risk, even though the ETFs are priced in U.S. dollars and traded on American exchanges—unless the ETF is expressly hedged.

Nikkei ETFs

Exchange-traded funds (ETFs) that offer indexed exposure to international markets can be a prudent investment for investors seeking global diversification. Specifically in Japan, the Nikkei 400 Index can provide targeted investment in large-cap and mid-cap Japanese companies.

The Nikkei 400 Index employs a rigorous screening process based on return on equity, cumulative operating profit, and market capitalization to select high-quality, capital-efficient Japanese companies. Other leading Japanese indexes include the MSCI Japan Index, the Nasdaq AlphaDEX Japan Index, the FTSE Japan 100% Hedged to USD Index, and the Nikkei 225 Index.

Below are three ETFs that track the performance of the JPX-Nikkei Index 400. This index includes 400 large-cap and mid-cap Japanese equities. These funds offer investors long portfolio investment options for exposure to the Japanese market with some consideration for currency benefits.

1. iShares JPX-Nikkei 400 (JPXN)

JPXN is an index fund that seeks to track the JPX-Nikkei Index 400. The fund provides exposure to 400 high quality, large- and mid-cap Japanese stocks. JPXN does not employ currency hedging in its investment strategy. It is managed in Japanese yen with daily net asset values generated in U.S. dollars.

Assets Under Management: $87 million
Price to Earnings Ratio: 16.45
Price to Book Ratio: 1.34
Number of Holdings: 389
YTD return: 7.19%

2. Deutsche X-trackers Japan JPX-Nikkei 400 Equity ETF

JPN tracks the JPX-Nikkei 400 Total Return Index. The Fund uses an index replication strategy to invest in stocks from the Index. The Fund does not use currency hedging in its investment strategy.

Assets Under Management: $14.4 million
Price to Earnings Ratio: 18.85
Number of Holdings: 394
YTD Return: 3.08%

Note that in May 2017, Deutsche Asset Management closed its currency-hedged version of this fund, the Deutsche X-trackers Japan JPX-Nikkei 400 Hedged Equity (JPNH).

3. iShares Currency Hedged JPX-Nikkei 400 ETF (HJPX)

This fund uses the JPX-Nikkei 400 Net Total Return USD Hedged Index as its benchmark. The fund seeks to replicate the Index’s holdings and return. It invests the majority of its assets in the iShares JPXN ETF. The fund also invests in currency hedged securities included in the Index such as foreign currency forward contracts to minimize currency risk between the Yen and US Dollar.

Assets Under Management: $2.9 million
Price to Earnings Ratio: 16.45
Price to Book Ratio: 1.34
Number of Holdings: 1
One Year Return: 5.27%

Bottom Line

The Nikkei 400 Index is one of the broadest most high-quality indexes for investment in Japanese companies. These ETFs provide investment vehicles for investors seeking to capitalize on the potential for continued momentum in Japanese equities.

The Nikkei 400 Index uses a screening methodology, enhancing the quality of large-cap and mid-cap companies in the Index for investors. Due diligence on these funds should be done regularly to ensure portfolio fit since investment in Japanese equities involves risks associated with international investing that may change over time.