Nomura Debuts Japan ETF Days After First Fund Conversions

Nomura Asset Management launched an actively managed Japan equity ETF Thursday, days after converting two mutual funds into ETFs.Key Takeaways: Monday’s conversions created SMDC, a small- and midcap stock fund, and MFIX, a multisector bond fund. Tokyo-based Nomura Asset Management Co. builds the model portfolio, setting sector weights before picking individual stocks. A 0.49% unitary fee covers most expenses for the fund, which seeks to hold at least 85 stocks. The Nomura Japan Equity ETF NJPN follows Monday’s conversions of the Nomura Smid Cap Core Fund and the Nomura Strategic Income Fund, according to the firm. Together, the moves expand a U.S. lineup that also includes the Nomura High Yield Total Return ETF (HFIX). Nomura says it is Japan’s largest asset manager and ETF manager. Its investment management division, part of Nomura Holdings, Inc. (NMR), managed $971.7 billion as of Sept. 30. NJPN marks the first time Nomura’s Japan equity expertise is available to U.S. investors, according to the announcement. The fund uses the same process Nomura runs for wealth and institutional clients in Japan. “Japan is back on the radar for global investors,” said Shawn Lytle, CEO of Nomura Asset Management International. He added that the fund gives U.S. investors a direct way into Japan’s markets through the country’s leading ETF manager. See more: Japan’s Record Run: The Land of the Rising Returns The fund charges a 0.49% unitary management fee, according to the prospectus. That single annual fee covers most fund expenses, including payments to the subadvisor. The fund lists on NYSE Arca. At least 80% of the fund’s net assets will go to Japanese companies, including depositary receipts, the prospectus states. Its starting universe is the largest stocks in the Tokyo Stock Price Index, which had about 1,600 members as of Aug. 31.How Nomura Picks Japan StocksTokyo-based affiliate Nomura Asset Management Co. serves as subadvisor, according to the prospectus. It sends a model portfolio to the fund’s manager, which then makes the trades. Its process starts from the top down, setting sector weights with factors such as market cycles, earnings trends, and economic forecasts. The subadvisor then picks stocks using valuation history and fundamental research, the prospectus says. The prospectus lists Kenji Oki and Taketo Usui, senior portfolio managers on Nomura’s Global Quants Team, as the fund’s managers. Oki has more than 13 years of industry experience, while Usui has more than 14. The fund generally seeks to hold at least 85 stocks. Still, it is nondiversified, so it can concentrate assets in fewer companies, according to the filing. Investors also get exposure to the Japanese yen, according to Nomura. However, the prospectus notes the fund may use derivatives to manage currency risk. Hiroyasu Koike, head of investment management at Nomura Holdings, said the ETF offers “meaningful international exposure for US-overweight portfolios.”Nomura Completes First ETF ConversionsMonday’s conversions were Nomura’s first mutual fund-to-ETF conversions, according to the company. The firm tied the moves to growing preference among U.S. investors for the ETF structure. The Nomura Smid Cap Core Fund became the Nomura Small and Mid Cap ETF (SMDC), according to Nomura. It targets U.S. small- and midcap companies that typically get less coverage from analysts. Meanwhile, the Nomura Strategic Income Fund became the Nomura Strategic Income ETF (MFIX). That bond strategy seeks higher income by spreading investments across several credit sectors, the firm said. Linda Galsim, global head of product for Nomura Asset Management International, called conversions “another critical component of our product strategy.” She said they sit alongside new launches as the firm focuses on expanding in the U.S. Anthony Caruso, the unit’s head of ETFs and product strategy, said both funds lean on the firm’s sector specialists. That expertise drives stock selection in SMDC and the search for income opportunities in MFIX. Nomura Asset Management International, the unit leading the U.S. push, managed $192.2 billion as of Sept. 30, according to the company. For more news, information, and analysis, visit the Equity ETF Content Hub.