VEA - EWJ: Limited Incentive At These Levels

2024-05-16 14:38:17 ET

Summary

• iShares MSCI Japan ETF is the largest Japanese-focused ETF in the market with over $16.5bn in AUM.
• Japan's Q1 GDP which came out today, was worse than expected, with private consumption, which accounts for half the economy struggling to take off.
• EWJ is dominated by large industrial stocks, and the underlying conditions for these entities don't look too bright.
• EWJ does not offer great value when compared to small-cap Japanese stocks or developed market stocks and the risk-reward on the charts is not very compelling.

ETF Profile

The iShares MSCI Japan ETF ( EWJ ), one of the oldest foreign ETFs around (28-year history), offers coverage to over 200 large-and-mid-cap Japanese stocks. Even though EWJ’s expense ratio of 0.5% is not the most competitive around, it is still perceived to be the “go-to” option for those seeking diversified equity exposures to Japan. This is exemplified by the total AUM it has accumulated over time (over $16.5bn), which is greater than the aggregate AUM of the next two largest Japanese ETFs (BBJP and DXJ). Investors could likely appreciate EWJ’s extremely stable portfolio, where the annual churn is virtually non-existent (only 3% last year)...

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