Nikko Asset Management (Nikko AM) has some USD211 billion under management, USD75 billion of which is in passive strategies. ETFs make up USD57 billion and the firm has grown over the last five years to become the tenth largest ETF provider globally and second largest in Asia.
Pritpal Lotay (pictured), ETF Specialist, EMEA and Koei Imai, Head of the ETF Centre, explain that recent expansions in their product range have included the introduction of two new REIT ETFs, designed to produce income.
Imai says: “This feeder ETF structure is the first in Japan and reflects the fact that we are continuously providing progressive solutions for our clients.
“Japan is a country with negative interest rates so investors are hungry for interest and REIT ETFs are good products for producing income.”
The new range includes an Asia ex Japan REIT ETF which launched on the Singapore Exchange in March 2017 with initial seed capital of USD30 million and has more than doubled to USD80 million, while the firm’s Tokyo listed Asian REIT ETF followed in June 2017.
Lotay says: “A lot of financial institutions in Japan are hungry for yield so there is significant demand for fixed income and any yielding investments.”
Imai says: “We are in regular contact with institutional investors, mainly drawn from the bank sector, and they are very active ETF players in Japan and they love high yield and high dividends.”
Lotay points out that Nikko AM has three strengths in the ETF industry: its track record, its size and its cost efficiency.
“In terms of track record, we have been managing passive funds since 1986 and are a co-founder of the ETF industry in Japan since launching our first ETF in 2001. That’s a long track record and our Nikkei 225 and TOPIX ETFs were launched over 16 years ago. Since then, Nikko AM has won multiple awards for its ETF products.”
Demand for Nikko AM’s ETFs comes from the financial institutions who are looking to take on more risk with the cash on their balance sheets which is not earning yield and also from the large ETF purchasing programme instituted by the Bank of Japan.
Imai says: “The Bank of Japan started purchasing ETFs in December 2010 with the objective of providing liquidity in the market and reducing the risk premium of equity. And this will continue because the sentiment of the Bank of Japan remains unchanged.”
Lotay also points out that relative to a lot of other European ETF providers, Nikko AMs offering is significantly cheaper.
“The AMC for our TOPIX ETF is 8.8 basis points,” he says. “The industry has seen a huge concentration on cost over the last few years, with lots of downward pressure, and our products are very competitive in today’s markets.”
Imai points out the total expense ratio on Nikko AM’s TOPIX ETF is approximately 14 basis points; which is almost 30 per cent cheaper than some US domiciled Japan ETFs.
“In addition, there is a tax efficiency with our ETFs,” Imai says, as US registered ETFs will face a double taxation on Japanese holdings.
Lotay says: “In Europe, we have seen increased interest in our JPX Nikkei 400 ETF which is structured and weighted according to quantitative and qualitative factors such as ROE, liquidity, operating profits and companies exhibiting good corporate governance. This ETF should be a beneficiary of the Abenomics environment. As such we have seen more interest for this ETF from investors who are optimistic and believe in the Abenomics story.”