In the hunt for yield, investors need to be creative - looking further afield for diversification and dividends. But one attractive, often overlooked market is Japan.
In a sweet spot
Japan's appeal as an investment destination is growing. Short-term, the country remains in a policy "sweet spot". With domestic demand improving, the widening difference between ultra-low domestic rates and those overseas should help the yen weaken further to around 115 USDJPY from 112.5 today. Broad based indices like the Topix stand to benefit from the dual improvement in domestic demand and weaker yen more than the MSCI Japan or the Nikkei 225.
Over the long term however, our eyes turn to economic recovery. Reflation could finally be making a very welcome return. House prices are increasing by over 4% a year, and total income from employment is on the rise - albeit not through wage growth - leading to more consumption. Earnings per share are growing faster than in any other major markets.*
Shinzo Abe's snap election call could be a bump in the road, with the rise of the New Hope party representing a risk. We don't however expect any major disruption to the political - or the policy - stance in its aftermath.
Rates will be low for some time yet, even with Governor Kuroda's mandate coming to an end in Q1 2018. More domestic-focused, smaller stocks should do well in a reflationary environment, pointing to an even stronger preference for the Topix in time.
*Source: Lyxor Cross Asset Research, Macrobond, 29 September 2017
Another clear trend is emerging: Japan's journey from relatively uninspiring destination for dividend seekers to viable equity income play is nearly complete. The country now yields more than the US and, because its payout ratio is so low, has the safest dividends in the developed world. There's no better time to launch the SG Japan Quality Income ETF - the latest addition to our quality income stable.
3 key charts on dividends
- Current yields - Japan yields more than the US
- Payout ratio - Japan has the safest dividends in the developed world
- Balance sheet strength - Japanese companies have the strongest net cash positions
Source: Societe Generale Cross Asset Research / Equity Quant, MSCI, Datastream, Factset. July 2017
Our new Japan Quality Income ETF selects 60 of the finest stocks, stress-tested for leverage, balance sheet strength and the size of their dividend yields. And, with a current yield of 2.40%, and a track record of higher returns and lower volatility than mainstream indices, what's not to like?
Source: Societe Generale Cross Asset Research / Equity Quant, MSCI, Datastream, Factset. Data as at June 2017
Lyxor ETF offers a range of low cost ETFs targeting income. For more information on passive funds to boost or protect your income, visit LyxorETF.co.uk
Unless otherwise stated, all data is sourced: Lyxor & SG Cross Asset/Equity Quant Research teams 29 September 2017. Opinions expressed are as at time of writing. Past performance is no guide to future returns.
This document is for the exclusive use of investors acting on their own account and categorized either as "eligible counterparties" or "professional clients" within the meaning of Markets in Financial Instruments Directive 2004/39/EC. It is not directed at retail clients. In Switzerland, it is directed exclusively at qualified investors.
Some of the funds described in this communication are sub-funds of either Multi Units Luxembourg or Lyxor Index Fund, being both investment companies with Variable Capital (SICAV) incorporated under Luxembourg Law, listed on the official list of Undertakings for Collective Investment, and have been approved and authorised by the CSSF under Part I of the Luxembourg Law of 17th December 2010 (the "2010 Law") on Undertakings for Collective Investment in accordance with provisions of the Directive 2009/65/EC (the "2009 Directive") and subject to the supervision of the Commission de Surveillance du Secteur Financier (CSSF). Alternatively, some of the funds described in this document are either (i) French FCPs (fonds commun de placement) or (ii) sub-funds of Multi Units France a French SICAV, both the French FCPs and sub-funds of Multi Units France are incorporated under the French Law and approved by the French Autorité des marchés financiers. Each fund complies with the UCITS Directive (2009/65/CE), and has been approved by the French Autorité des marchés financiers. Société Générale and Lyxor AM recommend that investors read carefully the "risk factors" section of the product's prospectus and Key Investor Information Document (KIID). The prospectus and the KIID are available in French on the website of the AMF(www.amf-france.org). The prospectus in English and the KIID in the relevant local language (for all the countries referred to, in this document as a country in which a public offer of the product is authorised) are available free of charge on lyxoretf. com or upon request to [email protected] lyxor.com. The products are the object of market-making contracts, the purpose of which is to ensure the liquidity of the products on NYSE Euronext Paris, Deutsche Boerse (Xetra) and the London Stock Exchange, assuming normal market conditions and normally functioning computer systems. Units of a specific UCITS ETF managed by an asset manager and purchased on the secondary market cannot usually be sold directly back to the asset manager itself. Investors must buy and sell units on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying units and may receive less than the current net asset value when selling them.Updated composition of the product's investment portfolio is available on www. lyxoretf.com. In addition, the indicative net asset value is published on the Reuters and Bloomberg pages of the product, and might also be mentioned on the websites of the stock exchanges where the product is listed. Prior to investing in the product, investors should seek independent financial, tax, accounting and legal advice.It is each investor's responsibility to ascertain that it is authorised to subscribe, or invest into this product. This document together with the prospectus and/or more generally any information or documents with respect to or in connection with the Fund does not constitute an offer for sale or solicitation of an offer for sale in any jurisdiction (i) in which such offer or solicitation is not authorized, (ii) in which the person making such offer or solicitation is not qualified to do so, or (iii) to any person to whom it is unlawful to make such offer or solicitation. In addition, the shares are not registered under the U.S Securities Act of 1933 and may not be directly or indirectly offered or sold in the United States (including its territories or possessions) or to or for the benefit of a U.S Person (being a "United State Person" within the meaning of Regulation S under the Securities Act of 1933 of the United States, as amended,and/or any person not included in the definition of "Non-United States Person" within the meaning of Section 4.7 (a) (1) (iv) of the rules of the U.S. Commodity Futures Trading Commission.). No U.S federal or state securities commission has reviewed or approved this document and more generally any documents with respect to or in connection with the fund. Any representation to the contrary is a criminal offence. This document is of a commercial nature and not of a regulatory nature. This document does not constitute an offer, or an invitation to make an offer, from Société Générale, Lyxor Asset Management (together with its affiliates, Lyxor AM) or any of their respective subsidiaries to purchase or sell the product referred to herein.These funds include a risk of capital loss. The redemption value of this fund may be less than the amount initially invested. The value of this fund can go down as well as up and the return upon the investment will therefore necessarily be variable. In a worst case scenario, investors could sustain the loss of their entire investment. This document is confidential and may be neither communicated to any third party (with the exception of external advisors on the condition that they themselves respect this confidentiality undertaking) nor copied in whole or in part, without the prior written consent of Lyxor AM or Société Générale. The obtaining of the tax advantages or treatments defined in this document (as the case may be) depends on each investor's particular tax status,the jurisdiction from which it invests as well as applicable laws. This tax treatment can be modified at any time. We recommend to investors who wish to obtain further information on their tax status that they seek assistance from their tax advisor. The attention of the investor is drawn to the fact that the net asset value stated in this document (as the case may be) cannot be used as a basis for subscriptions and/or redemptions.The market information displayed in this document is based on data at a given moment and may change from time to time. Authorizations: Lyxor International Asset Management (Lyxor AM) is a French management company authorized by the Autorité des marchés financiers and placed under the regulations of the UCITS (2009/65/EC) and AIFM (2011/61/EU) Directives.Société Générale is a French credit institution (bank) authorised by the Autorité de contrôle prudentiel et de résolution (the French Prudential Control Authority.
This material reflects the views and opinions of the individual authors at this date and in no way the official position or advices of any kind of these authors or of Lyxor International Asset Management and thus does not engage the responsibility of Lyxor International Asset Management nor of any of its officers or employees. This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and principal trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our asset management area, principal trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research.
© 2016 LYXOR INTERNATIONAL ASSET MANAGEMENT ALL RIGHTS RESERVED