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Boost ETP, an independent provider of exchange-traded products (ETPs), has listed Europe’s first short and leveraged Japanese equity ETPs – the Boost Topix 1x Short Daily ETP (1JAS) and the Boost Topix 2x Leverage Daily ETP (2JAL).
The products, which have been listed on the London Stock Exchange (LSE), provide inverse (-1x) and geared (2x) exposure, respectively, to the daily performance of the Topix Index.
The Topix – short for Tokyo Stock Price Index – is a free-float-adjusted market capitalisation-weighted index that tracks all domestic common stocks listed on the First Section of the Tokyo Stock Exchange. The index has about 1,700 constituents and is widely seen as the most relevant barometer of the Japanese stock market.
The index has a significant cyclical bias, reflecting Japan’s export-oriented economy, with consumer discretionary and industrial companies comprising 20.8% and 20.0% respectively. These sectors are followed by financials with 19.8%, information technology with 10.4% and consumer staples with 7.5%. Major constituents include Toyota Motor Corp, Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, Honda Motor Co, and Softbank.
Investors have been in love with Japanese stocks for much of the past nine months thanks to ultra-loose monetary policy from the Bank of Japan, which has resulted in tens of billions of dollars being pumped into the country’s capital markets – including directly into locally listed Topix and Nikkei ETFs. The surge of money flowing into the market has pushed the Topix up by 64% (1 November 2012 to 11 July 2013), outperforming the FTSE 100 by 24%, the S&P 500 by 14%, the DJ Euro Stoxx 50 by 23%, and the MSCI Emerging Markets Index by 37% (in USD). Year to date, some $12 billion has flowed into Japanese equity ETFs / ETPs – a large proportion of which has gone into the NYSE Arca-listed WisdomTree Japan Hedged Equity ETF (DXJ).
However, the volatility of Japanese equities has increased and investors’ love affair with the market could prove fragile and short-lived, as suggested by the market’s abrupt correction during the second half of May and into June, during which the Topix fell around 18%. Although the market has since recovered, volatility is likely to remain a significant consideration for short and long-term investors alike. These kinds of conditions lend themselves to leveraged products, which enable investors to both capitalise on short-term swings and hedge existing longer-term positions.
Hector McNeil, Co-CEO of Boost, said: “Japan is one of the world’s most important economies and investors have taken a huge interest in the actions being taken by the Japanese government to try and kick start their economy. Global inflows into Japanese equity ETFs have been enormous in 2013 and European investors have asked Boost to offer these Japanese equity ETPs. The Boost Topix 1x Short Daily ETP (1JAS) and Boost Topix 2x Leverage Daily ETP (2JAL) are a first for Europe and should add significant value to investors who want to invest in Japan and hedge existing positions.”
The products both come with an annual management fee of 0.75% (excluding swap fees).