This post outlines the top 5 holdings in an index fund which tracks the Japanese stock market. Such a passively managed fund will offer both international diversification for an investor’s portfolio and exposure to companies which have the potential to earn big returns.
Investing in a low cost index fund such as those provide by Vanguard will allow the investor to achieve the best possible returns by minimising losses caused by excessive management fees.
Knowing the top companies in a particular index fund will enable the investor to better understand that when they buy units of the fund they will also be buying actual slices of real cash generating businesses. Such thinking will allow the investor to think long term and apply a “buy and hold” investing philosophy, therefore avoiding irrational behaviour such as selling when markets seem high and trying to buy when they seem low. Discipline and staying the course will make Financial Independence a real possibility.
Japan’s economy and target portfolio allocation
Japan has the third largest economy in the world as measured by nominal Gross Domestic Product (GDP). The Nikkei 225, calculated since 1950, is the stock market index for the Tokyo Stock Exchange (TSE). With the largest electronics and third largest automotive industries in the world, Japan is regarded as one of the most innovative countries. As the Yen is the unit for the index, owning a Japan index fund will also offer currency diversification.
From my experience, the Japan fund tends to be the most volatile. This will be a good thing; volatility is a good friend to the investor. According to Warren Buffett, volatility is not the same as risk – when stock prices dip, buying opportunities will be presented to the intelligent investor. Here are the top 5 holdings within a Japan stock index fund to an investment portfolio.
Toyota Motor Corp (TYT)
Toyota Motor Corporation is the second largest global automative manufacturer. Founded in 1937, the company is known for models such as the hybrid electric Prius, Camry, Land Cruiser, Corolla and Yaris. Toyota is also involved in other industries including financial services, housing, Information Technology and design. The company has presence in over 190 countries and regions worldwide which provides excellent access to global markets.
Toyota makes up 4.65% of my Japan index fund and has a projected dividend yield of a respectable 3.43%. The company’s 10 year annual return is 0.71%. Latest 5 year returns for Toyota stocks are:
Mitsubishi UFJ Financial Group Inc (8306.T)
Mitsubishi UFJ Financial Group (MUFJ) is a bank holding and financial services company based in Chiyoda, Tokyo. MUFJ provides services in consumer finance, credit cards, business finance, leasing and asset management. It is one of the main components of the Mitsubishi group and the fourth largest bank in the world by total assets held.
MUFG makes up 2.63% of my Japan index fund and has a projected dividend yield of 2.45%. The company’s 10 year annual return is -2.98 %. Latest 5 year returns for MUFG stocks are:
SoftBank Group Corp (SFTBF)
The third largest holding in the Japan index fund, Softbank, is a multinational involved in telecommunications, Information Technology , finance, media, marketing and internet services. The company which founded in 1981 has been involved in high profile diverse acquisitions such as British chip designer ARM Holdings and New York based Fortress Investment Group. Softbank has seen a recent surge in its market capitalisation to become the 62nd largest company in the world.
Softbank makes up 1.91% of my Japan index fund and has a projected dividend yield of a 0.52%. The company’s 10 year annual return is 13.66 %. Latest 5 year returns for Softbank stocks are:
Honda Motor Company Ltd (HMC)
Honda Motor Company (Honda) the fourth largest holding in the Japan index fund, was established in 1948 by Japanese engineer Soichiro Honda. The company is a conglomerate mostly involved in the manufacturing of extensive ranges of automobiles, motorcycles, aircraft and power products.
Other business activities are provision of financial services to customers through its global car dealership network. Honda is the eighth largest global automobile manufacturer; producing long standing reliable models such as the Civic which was established in 1972 and is now in its tenth generation. Honda Racing Corporation (HRC) is involved in motorcycle racing and participates in events such as the MotoGP.
Honda makes up 1.61% of my Japan index fund and has a projected dividend yield of a 0.52%. The company’s 10 year annual return is 0.58%. Latest 5 year returns for Honda stocks are:
Sumitomo Mitsui Financial Group Inc (SMFG)
Sumitomo Mitsui Financial Group (SMFG) is a financial services company which was founded by the largest bank in Japan, Sumitomo Mitsui Banking Corporation. The company is involved in services such as consumer finance, leasing, commercial banking and securities. With asset holdings of nearly US $2 trillion, SMFG is one of the largest financial institutions in the world.
SMFG makes up 1.60% of my Japan index fund and has a projected dividend yield of a 3.67%. The company’s 10 year annual return is -5.30%. Latest 5 year returns for SMFG stocks are:
Above are the top five holdings in the Japan index fund in my portfolio. For overviews of the top 5 companies in typical index funds for other world regions click below: