BlackRock rolls out Japan smart beta and factor ETFs

Mar 14th, 2019 | By | Category: Equities

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BlackRock has launched two new ETFs on Nasdaq Exchange, providing smart beta and value-focused exposure to Japan’s equity market.

BlackRock rolls out Japan smart beta and factor ETFs

The new funds provide smart beta or value-focused exposure to the MSCI Japan Index.

Each fund tracks an index that is derived from the parent MSCI Japan Index, a well-known proxy for the performance of Japan’s large- and mid-cap segments.

The MSCI Japan Index is weighted by free-float market capitalization and covers securities listed on the Tokyo Stock Exchange, Osaka Stock Exchange, Jasdaq and Nagoya Stock Exchange, representing approximately 85% of the country’s market cap.

The index’s largest sector exposures are to industrials (20.9%), consumer discretionary (18.4%), financials (11.3%), information technology (10.4%), and health care (9.2%).

Smart beta

The iShares MSCI Japan Equal Weighted ETF (EWJE US) tracks the MSCI Japan Equal Weighted Index.

The index includes all 323 of the parent index’s securities but assigns each stock an equal weight at every quarterly rebalance.

Each constituent thus has a weight of around 0.31% in the index at each rebalance which notably lowers the influence of the MSCI Japan’s largest stocks: Toyota (4.2%) and SoftBank (2.3%).

Interestingly, the equal-weighted approach does not significantly alter sector exposures compared to the parent index. The largest sector weights in the equal-weighted version are industrials (23.0%), consumer discretionary (16.2%), information technology (10.6%), financials (9.7%), and materials (9.5%).

The ETF comes with an expense ratio of 0.15%.

Value-focused

BlackRock’s other fund launch is the iShares MSCI Japan Value ETF (EWJV US) which is linked to the MSCI Japan Value Index.

The index screens its parent universe for stocks with strong value characteristics based on three metrics: book value to price, 12-month forward earnings to price, and dividend yield.

This process has reduced the number of constituents to 174 which are weighted by market capitalization. Index reconstitution and rebalancing occur semi-annually.

Sector exposures are broadly similar compared to the parent index except for the financials sector which has nearly doubled under the value-screening methodology. The largest sector exposures are consumer discretionary (21.3%), industrials (21.3%), financials (20.8%), communication services (6.9%), and health care (5.7%).

The ETF also comes with an expense ratio of 0.15%.

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