First Ex-Japan Small Cap ETF Debuts

by on February 7, 2012 | ETFs Mentioned:

iShares continued its torrid pace of product development with yet another first-to-market ETF, rolling out a fund targeting small cap Asian stocks excluding Japan. The new iShares MSCI All Country Asia ex Japan Small Cap Index Fund (AXJS) is the first to specifically target small cap stocks in that geographic segment, though a handful of other exchange-traded products offer exposure to larger Asian companies while explicitly excluding Japan [see also Five New Features On] . 

Under The Hood

Linked to the MSCI All Country Asia ex Japan Small Cap Index, AXJS consists of more than 800 individual holdings from various developed and emerging markets. The largest country allocations go to Taiwan (21%), South Korea (20%), and China (17%), with Hong Kong, India, Singapore, Malaysia, Thailand, and Indonesia also represented in the underlying index. From a sector perspective, AXJS is pretty well balanced; no one corner of the market makes up more than 20% of assets. The largest weights are to consumer discretionaries (19%), financials (18%), technology (17%), industrials (16%), and materials (12%) [see the AXJS fact sheet].

The average market cap for the underlying index comes in at about $7.5 billion. iShares also offers the MSCI All Country Asia ex-Japan Index Fund (AAXJ), which was introduced in 2008 and has gathered more than $2 billion in assets. That ETF features allocations to the same countries as the new ETF, but has a heavier tilt towards large cap stocks [try our Free ETF Head-To-Head Comparison Tool].

Ex-Japan ETFs

Japan’s economy has been stuck in a decades-long lull, and has struggled recently thanks to a stubbornly strong yen that has diminished the competitiveness of the country’s exports market to international consumers. Faced with a massive debt burden–Japan’s public debt totals more than 200% of GDP, a greater percentage than even Greece–Japan’s growth prospects have diminished significantly over the last several years [see also ETFs To Play AAA Europe]. The country was recently passed by China in terms of GDP, and in coming decades should be surpassed by other emerging markets as well. Japan is the weak link in an otherwise red hot Asian economy, bringing up the rear as both developed economies such as Singapore and Hong Kong and emerging markets such as China and Indonesia continue to elevate the economic importance of the region on the global stage¬†[see Asia-Centric ETFdb Portfolio].

So it is no surprise that many U.S. and international investors are interested in achieving exposure to Asia that excludes Japan; the roster of other countries included in AXJS includes several rapidly-expanding markets with tremendous long-term potential. AXJS joins a number of other “ex-Japan” ETFs already on the market, including:

  • PowerShares FTSE RAFI Asia Pacific ex-Japan Portfolio (PAF)
  • iShares MSCI Pacific ex-Japan Index Fund (EPP)
  • WisdomTree Asia Pacific ex-Japan Fund (AXJL)
  • First Trust Asia Pacific Ex-Japan AlphaDEX Fund (FPA)
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Disclosure: No positions at time of writing.