Welcome to ETFs Around the World, Selfwealth's new four-part series that takes a closer look at some of the most interesting regional ETFs on the market today. As global markets continue to evolve, investors have an opportunity to rethink their strategies and tap into high-potential growth areas outside of their home country. In this special mini-series, we'll dive deep into ETFs that focus on Japan, India, and Europe, comparing two top-performing funds from each of these regions.  

In the final article, we'll zoom out to compare two leading global equity ETFs, offering a broader perspective on how international funds stack up on the global stage. 

This series isn’t about picking winners – it's about exploring new angles and considering how regional dynamics could shape your ETF portfolio as we head into 2025. Whether you're already familiar with these markets or are looking for fresh insights, we’ll help you navigate the evolving landscape of international ETFs with a new lens. 

It is important to always do your own research before making decisions to invest.    

This article was produced 15 November 2024. 

Key takeaways: 

• Both the Betashares Japan ETF and the iShares MSCI Japan ETF offer exposure to large-cap Japanese shares, but the former features currency hedging, while the scope of the latter is more diversified based on holdings and extends to mid-cap companies. 

• Recent activity across the broader market shows greater trading interest in IJP, which also oversees a larger pool of net assets. 

• HJPN has outperformed its more established peer over recent timelines, with much of this differential due to currency hedging. 

• iShares charges a slightly lower management fee for IJP of 0.50% per annum, compared with 0.56% per annum for Betashares HJPN. 

The first port of call in this series is Japan, which is the fourth-largest economy in the world by nominal GDP. Best known for its manufacturing and services capabilities, Japan is also home to many household names that are pioneers within their respective fields. From the likes of Toyota to Sony, Mitsubishi, and a host of others, the Japanese share market is the second largest among developed markets. 

Two ASX-listed ETFs that offer pure-play exposure to the Japanese market include the Betashares Japan (Currency Hedged) ETF (ASX: HJPN) and the iShares MSCI Japan ETF (ASX: IJP), which are the subject of our head-to-head comparison today. 

On that note, these are the key features of each fund. 

Fund Objective 

Beginning with the Betashares Japan ETF, this fund aims to track the performance of the S&P Japan Exporters Hedged AUD Index, before fees and expenses. It is intended to provide investors with diversified exposure to “the largest globally competitive Japanese companies”. 

To minimise the impact of foreign exchange rates on the performance of the fund, its exposure to the Japanese yen is currency hedged into Australian dollars. 

On the other hand, iShares MSCI Japan ETF aims to follow the MSCI Japan Index, offering performance that should align with the index, before the impact of fees and other expenses.  

In contrast with HJPN, iShares IJP does not hedge for currency fluctuations. The index it tracks has a broader focus insofar as both large and mid-cap Japanese companies. Overall, the fund provides targeted access to an estimated 85% of the Japanese share market. 

Fund Profiles  

As of November 12, 2024, the Betashares Japan ETF managed $147.6 million in net assets. These assets have been accumulated since May 2016, when the fund was first admitted to the ASX. 

By way of comparison, the iShares MSCI Japan ETF predates HJPN. It made its debut on the local market back in October 2007. With that, the fund also oversees a higher value of assets under management (AUM), with net assets of $671.8 million as of November 12, 2024. 

Courtesy of the ASX, and its Investment Products monthly update for October 2024, both ETFs recorded an increase in AUM in October 2024.  

In the case of HJPN, its FUM increased by $6.6 million, including approximately $1.9 million in fund inflows. IJP grew its FUM by a higher amount, up $11.4 million over the month, but a higher portion of this was attributable to fund inflows, which contributed $10.4 million to the fund’s overall growth throughout October. 

Despite the significant difference in net assets managed by each fund, trading interest in the two products was more comparable during October.  

Across all ASX trading (broker) participants, HJPN was at the centre of nearly 2,600 trades, valued at $16.1 million. There were nearly 4,400 trades in IJP valued at $37.9 million. As such, the average trade in the Betashares Japan ETF was valued at $6,246, compared with $8,685 for the iShares MSCI Japan ETF. 

Fund Holdings 

As noted earlier, the main points of difference between these two Japan-focused ETFs are that HJPN offers exposure exclusively to large-cap companies, and hedges for currency movements, while IJP invests in both large-cap companies and mid-cap businesses, with no currency hedging. 

In terms of sector allocation, the ETFs differ in their asset weightings as shown below. While the pair share common exposure levels to the likes of the Industrials, Materials, Consumer Staples, and Energy sectors, HJPN has allocated more of its capital to Consumer Discretionary, Information Technology, and Health Care shares. Instead, IJP has a higher level of exposure to Financials, Communication Services, and Real Estate. 

 ^ = as of October 31, 2024 

* = as of November 12, 2024 - rounded to one decimal place 

Meanwhile, the top 10 holdings for each ETF are shown below. The Betashares Japan ETF featured 144 unique equities within its portfolio as of November 12, 2024, with the top 10 representing 37.7% of the fund’s net assets. At the same date, the iShares MSCI Japan ETF held shares in 199 unique Japanese companies, but its top 10 holdings accounted for just 26.8% of the fund’s net assets, making it the more diversified fund at the time of writing. 

* = as of November 12, 2024 - rounded to one decimal place

Performance and Distributions 

In comparing the two funds' performances over recent years, it is worth noting that much of the difference between HJPN and IJP centres on exposure to currency movements.  

In November 2019, one Australian dollar bought around 74 Japanese yen. However, as of November 2024, the AUD/JPY rate has since increased to a ten-year high of approximately 1:101 — an increase of approximately 36%. 

As such, caution should be exercised in drawing any inferences between the historical performance records of each fund. Not only is past performance not indicative of future performance, but currency movements have the potential to be volatile and are subject to several factors outside the fund’s control. 

Nonetheless, over the last one, three, and five years, the Betashares Japan ETF has returned 30.61%, 13.72% per annum, and 14.81% per annum respectively. These figures are based on the period leading up to October 31, 2024. HJPN has benefitted from currency hedging exposure over recent years.  

For the iShares MSCI Japan ETF, it has returned 13.63%, 6.09% per annum, and 5.56% per annum over the last one, three, and five years respectively. These figures are also based on the period leading up to October 31, 2024. As IJP does not utilise currency hedging, its returns have been impacted by a weaker Japanese yen across each timeline. This is because IJP’s holdings are denominated in Japanese yen, but the fund’s base currency is the Australian dollar. 

Both ETFs seek to pay semi-annual distributions to unitholders. Like with any ETF product, the amount and timing of distributions will vary from period to period, and there may even be periods where no distributions are made. 

Fees 

When it comes to fees, there is only a minor difference between what the two funds charge investors. 

The Betashares Japan ETF charges a management fee and cost of 0.56% per annum. This is slightly higher than the iShares MSCI Japan ETF, which charges a management fee of 0.50% per annum. 

Management fees are calculated in relation to the net asset value (NAV) of each fund daily, and prospective investors should note that other fees may apply.  

Please refer to the relevant Product Disclosure Statements for up-to-date details on costs and expenses, which may be deducted from the fund’s assets as and when they are incurred.  

Summary 

Both the Betashares Japan ETF and the iShares MSCI Japan ETF offer exposure to large-cap Japanese shares, but IJP also tracks some mid-cap companies. The latter, which is a larger and more established fund, is more diversified, with its top 10 holdings accounting for 26.8% of net assets, compared with 37.7% for HJPN. 

Perhaps the largest point of difference between the two funds rests around currency exposure. HJPN’s Japanese yen exposure is currency hedged into Australian dollars. This has played a central role in the fund’s historical outperformance compared with IJP. However, investors should remember that past performance is not an indicator of future performance, and currency movements can be volatile in either direction. iShares IJP also differentiates itself courtesy of a lower management fee of 0.50% p.a. compared with 0.56% p.a. for Betashares HJPN. 

For more information, you can read about the Betashares Japan ETF here, and the iShares MSCI Japan ETF here. Before investing in any ETFs, you should consult the respective product’s Product Disclosure Statement, which will be available on the fund’s website. 

Past performance is not an indicator of future performance, and you should undertake your own research