Contributor, Benzinga
September 6, 2023

Many investors understand the benefits of diversifying their portfolios. Buying stocks in different sectors minimizes your risk and exposes your portfolio to different opportunities. However, you can also mitigate risk and potentially increase returns by investing in international stocks. International assets may perform differently than domestic assets because the macroeconomic conditions vary. Japan ETFs are some of the funds that give you exposure to international assets.

7 Best Japan ETFs

Want to get exposure to Japan’s economic growth in your stock portfolio? These are some of the top Japan ETFs to consider. 

1. iShares MSCI Japan ETF (NYSEARCA: EWJ)

The iShares MSCI Japan ETF (NYSEARCA: EWJ) gives investors access to the Japanese stock market and has generated a 9.71% year-to-date return. The fund has a 0.50% expense ratio and has generated an annualized return of 4.86% over the past 10 years. The fund’s top three holdings are Toyota (5.12%), Sony (3.01%) and Mitsubishi UFJ Financial (2.62%). EWJ focuses on industrials (23.31%), consumer discretionary (18.61%) and information technology (13.91%). The fund’s three smallest sectors are real estate (3.02%), utilities (1.15%) and energy (0.82%). 

2. Franklin FTSE Japan ETF (NYSEARCA: FLJP)

The Franklin FTSE Japan ETF (NYSEARCA: FLJP) aims to mirror the performance of the FTSE Japan Capped Index. This index focuses on large and mid-sized companies. FLJP has generated an 11.09% year-to-date return and has a 3.49% annualized return over the past five years. The fund’s top three holdings are Toyota (4.96%), Sony (2.53%) and Mitsubishi UFJ Financial (2.29%). FLJP has 515 total holdings and over $1.5 billion in total net assets.

3. iShares Currency Hedged MSCI Japan ETF (NYSEARCA: HEWJ)

The iShares Currency Hedged MSCI Japan ETF (NYSEARCA: HEWJ) has generated an annualized return of 10.38% over the past five years and has gained 30.89% over the past year. This fund gives investors exposure to large and mid-cap Japanese companies while mitigating exposure to fluctuations between the Japanese yen and the U.S. dollar. The fund primarily holds iShares MSCI Japan ETF shares with some forward contracts for yen-to-dollar conversions. 

4. ProSharesUltra MSCI Japan (NYSEARCA: EZJ)

The ProShares Ultra MSCI Japan ETF (NYSEARCA: EZJ) gives investors 2x leverage for the MSCI Japan Index. The leveraged nature of this fund doubles the gains and losses from the benchmark and results in a higher expense ratio. Investors have to pay a 1.15% expense ratio to get exposure to this fund. EZJ has generated a 30.09% year-to-date return and an annualized return of 4.06% over the past 10 years. The fund has dramatic price movements and is better for swing traders than long-term investors.

5. iShares MSCI Japan Value ETF (NYSEARCA: EWJV)

The iShares MSCI Japan Value ETF (NYSEARCA: EWJV) focuses on Japanese value stocks with large and mid-sized market capitalizations. The fund has a 0.15% expense ratio, which is lower than most Japan ETFs. The fund has generated an annualized 10.25% return over the past three years. The 12-month trailing yield is 2.31%, and the fund has 142 holdings. EWJV’s top three holdings are Toyota (9..74%), Mitsubishi UFJ Financial (4.99%) and Sumitomo Mitsui Financial (3.27%). The fund’s top three sectors are industrials (26.00%), financials (21.85%) and consumer discretionary (21.11%). 

6. iShares JPX-Nikkei 400 ETF (NYSEARCA: JPXN)

The iShares JPX-Nikkei 400 ETF (NYSEARCA: JPXN) gives investors exposure to large and mid-cap Japanese stocks. The fund tracks the Nikkei 400 and has a 0.48% expense ratio. The fund has generated a 19.15% return over the past year and has an annualized return of 4.93% over the past 10 years. The fund has 393 holdings and a 12-month trailing yield of 1.04%. The fund’s top three holdings are Sumitomo Mitsui Financial (1.96%), Mitsubishi (1.91%) and Mitsubishi UFJ Financial (1.85%). The fund’s top three industries are industrials (24.44%), information technology (13.81%) and consumer discretionary (13.22%). 

7. WisdomTree Japan Small-Cap Dividend ETF (NYSEARCA: DFJ)

The WisdomTree Japan Small-Cap Dividend ETF (NYSEARCA: DFJ) gives investors exposure to Japanese dividend stocks. These companies are small caps that take on a different approach from other Japan ETFs on this list. The fund has generated a 15.70% return over the past year and has a 5.65% annualized return over the past 10 years. The fund has 747 holdings and a 0.58% net expense ratio. DFJ’s top three holdings are Kobe Steel (1.26%), Tokyo Seimitsu (0.79%) and Cosmo Energy Holdings (0.73%). The fund’s top three sectors are industrials (25.17%), materials (16.98%) and consumer discretionary (16.92%).

Where to Invest in ETFs

Investors can choose from many brokers. Whether you’ve been using the same broker for years or are looking to get started, you may want to consider these top picks. 

Factors to Consider When Selecting Japan ETFs

Investors can choose from several Japan ETFs and should consider the following factors before investing their capital. 

Expense Ratio

The expense ratio reveals how much you pay from your portfolio each year for the fund’s management and other expenses. A lower expense ratio makes an ETF more desirable since you get to keep more of your money.

Fund Size and Liquidity

A large fund is more liquid in case you want to get into a new ETF or use the proceeds to cover expenses. Smaller funds tend to be less liquid, which means you may have to sell shares at a discount to get them off your hands.

Tracking Accuracy

Many ETFs track a market index or another fund for their investors. If you like the index or benchmark being tracked, you should see how the fund’s overall performance compares to the benchmark. If there is a significant discrepancy, you may want to consider another ETF. 

Holdings and Diversification

ETFs give investors instant portfolio diversification because they usually hold dozens of stocks. Investors should look at the holdings and concentrations to see if an ETF has suitable diversification.

Performance Track Record

Investors should look at how an ETF has performed over the past year, five years and 10 years. An ETF’s historical performance does not guarantee future returns, but it offers an idea of whether the fund is consistent or if it has spikes and valleys.

Diversifying Your Portfolio with Japan ETFs

Japan ETFs give investors exposure to various equities for Japanese companies. These ETFs can mitigate risks from domestic economics and potentially lead to higher returns. Investors should assess their risk tolerances and financial goals before committing to Japan ETFs. 

Frequently Asked Questions 

Q

What is the most popular Japanese ETF?

A

The iShares MSCI Japan ETF (EWJ) is the most popular Japanese ETF. 

Q

Does Vanguard have a Japan ETF?

A

The Vanguard FTSE Pacific ETF tracks Japanese companies, but it also tracks companies throughout the Asia Pacific.

Q

How large is Japan's ETF market?

A

Japan’s ETF market reached $450 billion in May 2023.

Best Japan ETFs Methodology

The best Japan ETF methodology involved looking for companies that focused on Japanese equities. These funds often track large indexes that are well-known among Japanese investors. 

About Marc Guberti

Marc Guberti is an investing writer passionate about helping people learn more about money management, investing and finance. He has more than 10 years of writing experience focused on finance and digital marketing. His work has been published in U.S. News & World Report, USA Today, InvestorPlace and other publications.