Market Overview

Assess Asia-Pacific With This ETF

Assess Asia-Pacific With This ETF

This year, investors have been devoted to exchange-traded funds offering exposure to developed markets, excluding the U.S. Within this group of ETFs are offerings that allow investors to tap specific regions and, of course, single-country funds.

While Europe has been commanding much of the ex-U.S. developed markets attention this year, and rightfully so, investors should not be dismissive of opportunities in the developed markets of the Asia-Pacific region, including Japan and others. For example, the iShares Core MSCI Pacific ETF (NYSE: IPAC) is up nearly 14 percent year to date and hit an all-time high Thursday.

As part of the iShares core suite of cost-effective ETFs, IPAC comes with the commensurate low annual fee. The ETF charges just 0.1 percent per year, or $10 on a $10,000 investment, making it one of the least expensive ETFs tracking developed Asia-Pacific stocks.

Big On Japan

IPAC is a cap-weighted ETF and the typical outcome for a cap-weighted Asia-Pacific ETF is to be heavy on Japanese stocks. That is the case with IPAC as the ETF devotes about two-thirds of its roster to Japanese stocks. Overall, the ETF holds nearly 900 stocks, but the dominance of Japan in the ETF is not necessarily a drawback at the moment.

“Japanese equities are approaching peaks they have struggled to climb over in past decades, but we think this time may be different,” said BlackRock in a recent note. “Valuation is lower today than at previous high points in stock market performance (blue line), as the chart shows. Moreover, Japanese stocks appear inexpensive on the global stage. They are trading at a 20 percent discount to U.S. peers on a 12-month forward price-to-earnings basis, for example.”

Going Beyond Japan

IPAC tracks the MSCI Pacific Investable Market Index. Index provider MSCI classifies South Korea as an emerging market so investors will not find South Korean stocks in IPAC. The ETF's second-largest country allocation is 19.5 percent to Australia.

Along with Japan, Australia has been a solid country bet this year. Perhaps surprisingly so when considering commodities prices are low and global investors are raising concerns about the possibility of an Australian housing bubble. Still, the high-yielding iShares MSCI Australia ETF (NYSE: EWA) is up 13.1 percent this year.

IPAC allocates about 37 percent of its weight to financial services and industrial stocks and 24 percent to consumer discretionary and technology names. The ETF has a three-year standard deviation of 12.4 percent.

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