Warren Buffett has been bullish on select Japanese equities for several years and the Oracle of Omaha recently told members of the press in the Land of the Rising Sun that his Berkshire Hathaway (NYSE: BRK-B) is boosting stakes in some of the Japanese financial services it currently holds shares of and is evaluating other opportunities in the country.
Investors can follow suit with a variety of U.S.-listed Japan exchange traded funds, including the Franklin FTSE Japan ETF (FLJP ). Buffet aside, FLJP offers investors a lot. For example, the $1.02 billion fund, which follows the FTSE Japan Capped Index, charges just 0.09% per year. That’s the equivalent of $9 on a $10,000 investment, making FLJP one of the most cost-effective offerings in the Japan ETF category.
Plus, FLJP is higher by 7.20% year-to-date, but even with that decent performance, Japanese stocks aren’t on the radars of many global investors. Some of the reasons why that’s the case may also explain why Buffett is bullish on stocks in the world’s third-largest economy.
“There’s a lot for an investor with Buffett’s proclivities to like about Japanese stocks. For starters, they are unloved. Although it has enjoyed a recent winning streak, the Nikkei 225 index is still down meaningfully from its 52-week highs last summer — and nearly 30% below its 1989 record,” reported Nicholas Jasinski for Barron’s.
Buffett is often referred to as, rightfully, a legendary value investor. That’s likely another reason why he likes Japanese stocks. The forward price-to-earnings ratio on the Nikkei 225 indicates a discount to the S&P 500 and is well below the same metric on the Nasdaq-100 Index (NDX).
Berkshire’s “recent involvement in Japan has been via several trading houses, namely: Mitsui (8031. Tokyo), Itochu (8001. Tokyo), Marubeni (8002. Tokyo), Sumitomo (8053. Tokyo), and Mitsubishi (8058. Tokyo). Buffett bought 5% stakes in all five of them in August 2020 and they have appreciated significantly since,” according to Barron’s.
Financial services stocks account for 10.63% of FLJP’s roster. Three of the stocks mentioned above rank among FLJP’s top 20 holdings.
There’s another reason to consider FLJP. Because the ETF isn’t currency hedged, it can potentially benefit as the yen gains strength against the dollar. Year-to-date, the dollar is trading lower against a basket of major currencies and some market observers believe that due to profligate government spending in the U.S., the greenback could be headed for a period of extended weakness.
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