(Reuters) - Rayliant Global Advisors and Sumitomo Mitsui DS Asset Management (SMDAM) on Thursday launched the first actively managed exchange-traded fund (ETF) to focus specifically on Japanese small- and mid-cap stocks, the companies said.
Japan's Nikkei stock market index finally broke above 1989 records in February and continued setting a series of new highs throughout March.
Its rise has sparked a resurgence of interest in Japan-focused ETFs, which have pulled in more than $10 billion since January 2023, according to data from State Street Global Advisors. But all but one of those - the Matthews Japan Active ETF - have been passive index-linked funds, said Bryan Armour, ETF analyst at Morningstar.
In contrast to the Matthews ETF, whose holdings include household names like Hitachi Ltd and Mitsubishi Corp, the just-launched Rayliant SMDAM Japan Equity ETF will target companies with a market capitalization of between $2 billion and $5 billion.
"These smaller and midcap that often don't have much of a profile outside of Japan are much more entrepreneurial and much more like the kind of growth companies" with which U.S. investors are familiar, said Jason Hsu, founder and chief investment officer of Rayliant.
Examples range from Sanrio Co which owns the 'Hello Kitty' brand, to Maruwa Co, a manufacturer of specialist ceramic components for high-end electronics, Hsu said.
While Japan's smaller stocks have also rallied this year, they haven't kept pace with the larger companies included in the Nikkei. In yen terms, while the Nikkei has gained 17.9% so far in 2024, the MSCI Japan Small-Cap Index and the Standard & Poor's Japan Mid-Cap Index are up 11.75% and 8.8% in yen terms, according to data from Rayliant.
Rayliant will provide SMDAM with a macro view of the market and quantitative analyses of individual Japanese equities. SMDAM will combine that with fundamental research to construct an ETF portfolio of 30 to 50 individual stocks. The fund will trade on the New York Stock Exchange and will levy a fee of 72 basis points.