You might be forgiven for thinking that Australian fund managers are picking through the ASX's most popular shares in search of their next buy right now. Most Australian investors have a bias for local stocks and ASX exchange-traded funds (ETFs), which is a common phenomenon worldwide.
However, it seems that the likes of Commonwealth Bank of Australia (ASX: CBA), Wesfarmers Ltd (ASX: WES), and Telstra Group Ltd (ASX: TLS) aren't enticing our fundies right now. If a report in the Australian Financial Review (AFR) is to be believed, Australian fund managers are instead looking to the land of the rising sun.
Yep, according to the report, a 'who's who' of many of Australia's top fund managers, including Forager, Optimal Funds Management, Regal Funds, Arnott Capital, and Caledonia, were all present at the Daiwa-Japan Exchange Group conference last week. Representatives from superannuation funds such as AustralianSuper, CBUS, and Rest were also present. As were representatives from our sovereign Future Fund.
This conference is reportedly a major event for those interested in investing in Japan and the Japanese stock market.
It's not surprising to see so much interest in Japan in the current climate. Japanese stocks have been on a tear over the past year or so. The flagship Nikkei 225 Index is up 23.7% over just the past 12 months and up more than 90% since September 2020. Japan is home to some of the world's best-known and most popular brands, including Sony, Toyota, and Nintendo.
Warwick Johnson, of Optimal Funds Management, stated that "I'm bullish, optimistic about the Japanese sharemarket", and noted that his portfolio "was primarily long positions in Japanese companies at the moment".
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ETFs: How to invest in Japanese stocks on the ASX
That's all well and good for these professional investors. However, most ordinary ASX investors probably feel like the Japanese markets are out of reach. Although many ASX brokers offer access to US stocks, it is still uncommon to see non-specialist brokers offer access to the Nikkei.
Fortunately, there is an easy way to follow these expert investors and gain access to the best that Japan has to offer right here on the ASX. It's through using exchange-traded funds (ETFs), of course.
There are a few ASX ETFs that give Australian investors easy access to the Japanese markets.
Two of those are the BetaShares Japan Currency Hedged ETF (ASX: HJPN) and the iShares MSCI Japan ETF (ASX: IJP).
Both of these funds offer broad access to the Japanese market. And both offer significant exposure to Sony, Toyota, and Nintendo, as well as other Japanese stocks like Mitsubishi UFJ, Hitachi, and Mitsubishi Heavy Industries.
The most significant difference between these two funds is the use of currency hedging. Whenever an investor buys an international stock, fluctuations between the currency that the stock is denominated in and our own Australian dollar can change its value. The Betashares Japan Currency Hedged ETF takes away this variable by using complex financial engineering. This can help ASX investors if the value of the yen rises against the Australian dollar, but it can also be equally detrimental if the opposite occurs.
The iShares Japan ETF doesn't use hedging, so investors just have to take the good and the bad of currency fluctuations.
If you do decide to opt for the ETF with currency hedging, it will cost you slightly more, though. The BetaShares Japan Currency Hedged ETF charges a management fee of 0.56% per annum, while the iShares Japan ETF charges you 0.5% per annum.
