As we all know, Singaporeans love Japan.
With borders being open again, it’s almost as if half of Singapore was in Japan over Christmas.
We love to eat Japanese food and have a dip in an onsen.
Given how much we like everything Japanese, why not invest in Japanese stocks?
Japanese stocks have hit an incredible 33-year high in 2023.
In fact, the TOPIX is up 25% in 2023 alone.
This has not gone unnoticed, and investors worldwide are taking an interest in Japanese equities.
Why Invest in Japan?
As the fourth largest economy in the world (by nominal GDP), and a staunch US ally, Japan is well placed to benefit from geopolitical tensions.
At the same time, the current weak Yen has made Japanese exports very attractive.
This has been a huge boon for Japanese companies, with a 25.1% rally in the Japan TOPIX in 2023.
By contrast, the Straits Times Index only returned 8.8%.
Even after the rally though, Japanese stocks are still cheap on a fundamental valuations basis:
This has coincided with a huge inflow of foreign investment into Japan.
Warren Buffet himself is a big investor in the five major Japanese trading houses, with an average ownership of more than 8.5%.
The trading companies are Mitsubishi Corp., Mitsui & Co., Itochu, Marubeni and Sumitomo Corp*.
In four out of five companies, Berkshire’s holdings exceeded 8%.
*Securities referenced are not intended as recommendations to buy or sell securities.
New Way to Invest in Japan for Singapore Investors – Lion-Nomura Japan Active ETF (Powered by AI)
For those of you keen to add some exposure to Japan, there is now a direct way to invest in Japan on the SGX.
This new ETF is brought to you by two big names in the game.
Lion Global Investors, which is part of Great Eastern Holdings and a member of the OCBC Group.
In collaboration with Nomura Asset Management, the leading global investment firm headquartered in Japan.
The investment objective of the fund is to achieve long-term capital growth, through an actively managed portfolio of Japanese stocks, diversified across sectors and market capitalisation.
investment objective of the fund is to achieve long-term capital growth, through an actively managed portfolio of Japanese stocks, diversified across sectors and market capitalisation
For Singapore investors who want to get exposure to the Japanese equity market, this could be worth checking out.
Disclosure: This post is sponsored by Lion Global Investors. All views and opinions expressed in this post are from Financial Horse.
Lion-Nomura Japan Active ETF (Powered by AI) Review
Lion-Nomura Japan Active ETF (Powered by AI) is an actively managed ETF.
This means that while their reference benchmark is TOPIX, the fund manager will actively aim to outperform the broader Japan market, instead of just tracking the reference benchmark.
So for Singapore investors who do not have the time, energy or expertise to select Japanese stocks.
This could be an interesting alternative to the usual passive ETFs tracking the TOPIX or Nikkei.
Stocks Selection by Lion-Nomura Japan Active ETF (Powered by AI)
So how does Lion-Nomura Japan Active ETF (Powered by AI) aim to outperform the market?
The full stock selection methodology is disclosed in the prospectus.
To summarise briefly – the fund manager will:
- Shortlist 1,000 Japanese stocks based on daily trading volume
- Use an AI model that tracks a whole host of financial data to determine which stocks may outperform
- Select 50 – 100 stocks within that 1,000 stocks
- Selected stocks must comply with risk management controls determined by the fund manager
Some of the factors that the AI methodology will evaluate include:
- Valuation Metrics
- Technical Factors
- Growth Factors
- Profitability Factors
- Balance Sheet Factors
- Cash Flow Factors
- Shareholder Return
- Financial Quality
What is the asset allocation of the Lion-Nomura Japan Active ETF (Powered by AI)? Or the benchmark TOPIX?
Given the above, I was quite keen to understand more about the initial asset allocation of this active ETF.
Given that the ETF has not been listed, the exact list of 50 – 100 stocks that make up the ETF will only be made available once the Fund starts trading (after 31 January 2024).
However they did share their model/ pro-forma portfolio as of December 2023, for illustrative purposes only.
The charts below provide an idea for the ETF’s model/ pro-forma portfolio characteristics, for illustration purposes only.
The 5 largest sectors are:
- Financials (24%)
- Consumer discretionary (12%)
- Health Care (11%)
- Materials (11%)
- Real Estate (10%)
So quite a strong value tilt.
The top 20 constituents for the model portfolio* are set out below, to give you an idea of what kind of exposure you would be buying into:
*Note: The pro-forma portfolio diagrams/charts and constituent weightage displayed are illustrative only and do not represent the actual holdings of the fund at any point in time and are subject to changes at LGI’s discretion. Investors should refer to the Portfolio Holdings displayed on LGI’s website every month for more information on the actual holdings of the fund (as at a date specified) in the previous month or should approach LGI for more information on the fund. The sectoral representation in the pro-forma portfolio diagrams/charts also do not reflect the actual or future performance of the fund.
Do note that while the reference benchmark for the Fund is TOPIX, the Lion-Nomura Japan Active ETF (Powered by AI) is free to deviate from the asset allocation of TOPIX, as this is an actively managed ETF.
Monthly Rebalancing of Lion-Nomura Japan Active ETF (Powered by AI)
Rebalancing will be done on a monthly basis, but the maximum turnover is capped at 30% of the fund to prevent excessive churn.
The base currency of the Fund is JPY, but the units issued to investors in Singapore will be denominated in SGD (for SGD Class Units).
Historical Returns for the TOPIX
As this is a new ETF, no historical returns are available.
However given that the reference benchmark is TOPIX, I’ve extracted the chart of TOPIX below, just for an idea on the performance of the benchmark.
The TOPIX returned 25% as of end 2023, while 5-year annualized return is 10%*.
*Past performance is not necessarily indicative of future performance
Fees of Lion-Nomura Japan Active ETF (Powered by AI)
As with any ETF, there will be fees involved.
Management fees are currently 0.70% per annum.
Which frankly given the active nature of this ETF, is pretty reasonable.
Many other passive ETFs listed on the SGX are charging 0.4% fees, and those merely track the index instead of trying to outperform like with Lion-Nomura Japan Active ETF (Powered by AI).
Whereas a typical actively managed unit trust could charge as high as 1.5% per annum in fees.
Source: Lion-Nomura Japan Active ETF (Powered by AI) Prospectus
ETF can be bought using SRS (CPFIS inclusion may be added in time)
As this is a SGX listed ETF, you can buy Lion-Nomura Japan Active ETF (Powered by AI) using SRS Funds after 31 January 2024.
This is a big plus in my view.
For SRS funds you typically want to look at options with capital gains potential, and an ETF like this is a big diversifier from the usual SGX dividend stocks and REITs.
CPFIS inclusion is not available on IPO, but may be added at a later date.
First active ETF and First AI powered AI in Singapore managed by Lion Global Investors in collaboration with Nomura Asset Management
Lion-Nomura Japan Active ETF (Powered by AI), as its name suggests, is managed by Lion Global Investors in collaboration with Nomura Asset Management.
Both are some of the biggest names in the fund management business.
Lion Global Investors has been established in Singapore since 1986 and is subsidiary of Great Eastern Holdings (member of the OCBC Group).
As at 31 December 2023, their assets under management (AUM) stands at S$69.9 billion.
Nomura Asset Management was established in 1959, and is Japan’s top ETF issuer with 43% market share.
Both Lion Global Investors and Nomura Asset Management contribute to the stock selection for the ETF portfolio.
Potential Risks of Lion-Nomura Japan Active ETF (Powered by AI)
No investment is without risk, and I wanted to talk about some potential risks with Lion-Nomura Japan Active ETF (Powered by AI).
Stock Selection Risk
It bears noting that Lion-Nomura Japan Active ETF (Powered by AI) is an actively managed ETF, and it uses AI models to assist in the stock selection.
For investors, this will mean that you are trusting the fund managers and their proprietary AI model process with regards to the ETF’s final selection of 50 to 100 stocks.
In fact, this is Singapore’s first actively managed ETF.
And active management works both ways.
If the fund managers are good, they may outperform the benchmark TOPIX index.
But on the flip side, if the stock selection is poor, they may underperform the benchmark.
And given this is a new ETF, there is no track record to analyse.
Japan Macro Risk
The other risk of course, is Japan macro risk.
How will Japan perform in the year(s) ahead?
Given that this is an ETF that invests exclusively in Japan, you will need to be comfortable with the Japan exposure before investing.
Japan stocks have done very well in 2023 because of the weaker Yen.
But will things change in 2024, as the Bank of Japan starts to normalise monetary policy, and the Feds start to cut?
You never really know with these things, so investors should take a longer-term view here if you are keen to invest.
Who is Lion-Nomura Japan Active ETF (Powered by AI) right for?
Long story short – Lion-Nomura Japan Active ETF (Powered by AI) is a SGX listed ETF, that invests in Japanese stocks and aims to actively outperform the broader Japan market.
Some investors who can consider Lion-Nomura Japan Active ETF (Powered by AI) may include:
- Singapore investors looking to add geographical diversification
- Investors looking to tap into Japan’s long-term growth potential
- Investors looking to tap onto Lion Global Investors’ and Nomura Asset Management expertise in AI and active management
How to buy Lion-Nomura Japan Active ETF (Powered by AI)
The initial offer period is from 5 January 2024 to 25 January 2024.
You may buy the ETF through OCBC ATM, internet banking and mobile banking, as well as participating brokers as follows:
- iFAST Financial Pte Ltd
- Moomoo Financial Singapore Pte Ltd
- OCBC Securities Pte Ltd
- Phillip Securities Pte Ltd
- Tiger Brokers (Singapore) Pte Ltd
Click here to find out more about Lion-Nomura Japan Active ETF (Powered by AI).
Disclosure: This post is sponsored by Lion Global Investors. All views and opinions expressed in this post are from Financial Horse.
Disclaimer – Lion Global Investors Limited
This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. It is for information only, and is not a recommendation, offer or solicitation to deal in any capital markets products or investments and does not have regard to your specific investment objectives, financial situation, tax position or particular needs.
You should read the Prospectus and Product Highlights Sheet for the Lion-Nomura Japan Active ETF (Powered by AI) (“ETF”) which are available and may be obtained from Lion Global Investors Limited (“LGI”) or any of the appointed Participating Dealers (“PDs”), for further details including the risk factors and consider if the ETF is suitable for you and seek such advice from a financial adviser if necessary, before deciding whether to purchase units in the ETF. Investments in the ETF are not obligations of, deposits in, guaranteed or insured by LGI or any of its affiliates and are subject to investment risks including the possible loss of the principal amount invested. The ETF is an actively managed exchange traded fund. Please refer to the Prospectus for further details, including a discussion of certain factors to be considered in connection with an investment in an actively managed exchange traded fund.
The performance of the ETF, the value of its units and any accruing income are not guaranteed and may rise or fall. Past performance, payout yields and payments and any predictions, projections, or forecasts are not indicative of the future or likely performance, payout yields and payments of the ETF. Any extraordinary performance may be due to exceptional circumstances which may not be sustainable. Any dividend distributions, which may be either out of income and/or capital, are not guaranteed and subject to the manager of the ETF’s discretion. Any such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value of the ETF. Any references to specific companies or securities are for illustration purposes and are not to be considered as recommendations to buy, sell or otherwise invest in such securities or the products or services of such companies. It should not be assumed that investment in such specific securities will be profitable. There can be no assurance that any of the allocations or holdings presented will remain in the ETF at the time this information is presented.
You should independently assess and conduct your own investigation of the relevance, accuracy, adequacy and reliability of any information, opinion or estimates, graphs, charts, formulae or devices provided and seek professional advice on them. Any information, opinions, estimates, graphs, charts, formulae or devices provided are subject to change or correction without notice and are not to be relied on as advice. The information and opinions contained in this advertisement or publication have been derived from or reached from proprietary or non-proprietary sources believed in good faith to be reliable but have not been independently verified. LGI makes no guarantee, representation or warranty, express or implied, and accepts no responsibility for the accuracy or completeness of this advertisement or publication. No warranty is given and no liability is accepted for any loss arising directly or indirectly as a result of you acting on such information.
Where pro-forma portfolio diagrams and/or charts and constituent weightage are displayed in this advertisement or publication (if any), such pro-forma diagrams and/or charts and constituent weightage are illustrative only and do not represent the actual holdings of the ETF at any point in time and are subject to changes at LGI’s discretion. You should refer to the portfolio holdings to be displayed on LGI’s website every month for more information on the actual holdings of the ETF (as at the date specified) in the previous month or should approach LGI for more information on the ETF. The sectoral representation in the pro-forma portfolio diagrams and/or charts (if any) also do not reflect the actual or future performance of the ETF.
The ETF may, where permitted by the Prospectus, invest in financial derivative instruments for hedging or for the purposes of efficient portfolio management. The ETF’s net asset value may have higher volatility as a result of its narrower investment focus on a limited geographical market, when compared to funds investing in global or wider regional markets. LGI, its related companies, their directors and/or employees may hold units of the ETF and be engaged in purchasing or selling units of the ETF for themselves or their clients.
The units of the ETF are listed and traded on the Singapore Exchange Securities Trading Limited (“SGX-ST”), and may be traded at prices different from its net asset value, suspended from trading, or delisted. Such listing does not guarantee a liquid market for the units. You cannot purchase or redeem units in the ETF directly with the manager of the ETF, but you may, subject to specific conditions, do so on the SGX-ST or through the PDs.© Lion Global Investors® Limited (UEN/ Registration No. 198601745D). All rights reserved. LGI is a Singapore incorporated company and is not related to any corporation or trading entity that is domiciled in Europe or the United States (other than entities owned by its holding companies)
Disclaimer – JPX Market Innovation & Research, Inc.
The TOPIX Index Value and the TOPIX Marks are subject to the proprietary rights owned by JPX Market Innovation & Research, Inc. or affiliates of JPX Market Innovation & Research, Inc. (hereinafter collectively referred to as “JPX”) and JPX owns all rights and know-how relating to TOPIX such as calculation, publication and use of the TOPIX Index Value and relating to the TOPIX Marks. JPX shall not be liable for the miscalculation, incorrect publication, delayed or interrupted publication of the TOPIX Index Value.
Hello FH,
Will this ETF planning to payout Dividend? Or capital gain is the only thing investor can look forward to if this ETF perform well?
Thanks
That’s a good question, let me confirm this with the fund manager and circle back.
Interesting read! As a Singapore-based investor, I’m always on the lookout for promising investment opportunities in the Japanese market. The Lion-Nomura Japan Active ETF’s performance in 2023 is certainly impressive, and I’m keen to learn more about the AI-powered strategies that drove its growth. Can you tell me more about the fund’s portfolio construction and risk management process?