Geoffrey Post (pictured), Nikko Asset Management, Head of International Product Development and his Tokyo-based colleague Koei Imai, Head of Nikko AM's ETF Centre, are happy to report that in terms of their ETF business, 2015 was a growth year.
"We've seen a year of significant interest and strong flows," says Post. "Our assets ended the year significantly up at USD26.5 billion, with inflows of USD7.2 billion during the year."
"The flows that we have seen are particularly into Japanese Equity ETFs," Post says. "And a lot of this is due to the effect of Abenomics in Japan. There has been volatility in the markets in 2015 with resulting in and outflows, but on a net basis we have seen inflows particularly from institutions in Japan, who have significantly increased their allocations to Japanese Equities through ETFs."
Imai concurs: "Japanese institutions have traditionally favoured fixed income exposures but with ever lower yields are looking for other opportunities. They favour equities which have higher yields compared with bonds."
Nikko Asset Management launched a smart beta ETF in December 2015, the Listed Index Fund MSCI Japan High Dividend Low Volatility, which has especially appealed to institutional investors in search of yield.
Imai says: "It has been targeted at institutions coming out of bonds and going into equities through the need for some yield to escape negative yields which are increasingly a phenomenon in Japan. We developed this smart beta product based upon market feedback. We regard it as innovative and something that is differentiated in the marketplace."
Other innovations have included the Listed Index Fund Nikkei Leveraged Index which was launched in 2014 that Post describes as interesting in the current environment for investors who see the stock market having declined but have a positive view on its future direction.
Another popular product has been the Listed Index Fund J-REIT, which is based on the Tokyo Stock Exchange REIT Index. This is a capitalisation weighted index consisting of 52 property management companies listed on the Tokyo exchange, including office, residential and retail and logistics sub sectors.
Imai explains that the J-REIT ETF has proved very popular with Japanese institutional investors in part due to higher yield than equities. Post says: "Tokyo is looking forward to the Olympics in 2020 so there is interest and investment going into the property sector with considerable property redevelopment." Imai adds that Asian property prices are high in Taiwan, Hong Kong and mainland China, compared with Japan property prices. "They are at a good price and because they offer value, many Asian people now come to Japan to invest in property. "One of the growing phenomena is the Asian tourists going to Japan," Post says. "There are now significant numbers visiting and it's an interesting trend that ties in with the property market."
Nikko Asset Management's Chief Investment Officer for Japan Hiroki Tsujimura has remarked on the strong prospects for listed companies in Japan, despite the continued challenging macro-economic environment. He comments while 2014 saw corporate earnings reaching an all time high despite the deflationary environment, listed companies' capital efficiency are still low compared to their global peers. He argues despite continued headwinds the prospects for Japanese Equities are strong.
