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Buy 3 Japan Mutual Funds on Upward Q1 GDP Revision

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In the first quarter of 2017, Japan’s economy expanded for the fifth straight quarter, marking its longest stretch of gains since 2006. The world’s third-largest economy registered an expansion following a rise in capital expenditure and stronger exports. Rising business investment pushed up the country’s capex, while a weaker yen benefited exporters.

Currently, it is necessary to look beyond the success of the domestic market and diversify into other markets, particularly Japan. An expanding economy, improved export conditions and a stronger services sector mean that adding mutual funds with significant Japanese exposure to your portfolio will be great investments.

Q1 GDP Register 5-Straight Quarter Expansion

After contracting in the last quarter of 2015, Japan’s economy expanded in the last five quarters. According to the country’s Cabinet Office, in its preliminary reading, Japan’s real GDP increased 2.2% in the first quarter, better than analysts’ expectations of a 1.7% rise. Moreover, the third largest economy is expected to expand further to 2.4% in its second estimate.

Capital expenditure, one of the key components of GDP, increased 0.2% in the first quarter of 2017.  This was possibly one of the key drivers of Japan’s economic growth in the previous quarter. Additionally, recent data from Japan’s Ministry of Finance (MOF) showed that total capital expenditure rose by 4.5% in January to March from the same period last year, leading to three consecutive quarters of growth.

Export Conditions Improve, Services Sector Strengthens

In the previous quarter, net exports increased 0.2% and are expected to maintain this pace of growth on the back of a weaker yen. Additionally, Japan’s finance ministry data showed that exports advanced 7.5% in April from the year-ago period, registering its fifth consecutive month of gains.

Further, Nikkei-Markit services purchasing managers’ index (PMI) rose from 52.2 in April to 53 in May. The service sector increased at its fastest pace in nearly two years in May and reached its best settlement since August 2015.

Moreover, Japan’s core consumer inflation (CPI) increased 0.3% in April on a year-over-year basis after increasing 0.2% in March, as per National Statistics Bureau data. Also, consumer prices excluding food and energy costs advanced 0.1% last month, after decreasing 0.1% in the prior month.

Buy These 3 Japan Mutual Funds

All these economic reports clearly indicate that Japan’s economy is stabilizing. Moreover, the Nikkei 225 gained 3.1% and 8.8% over the last three and six months, respectively.

Additionally, mutual funds related to the Japan equity market also registered strong returns. According to Morningstar, the region’s equity mutual funds posted three-month, year-to-date (YTD) and one-year returns of 7.3%, 12.6% and 18.9%, respectively.

This upbeat backdrop calls for investing in three Japan mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have impressive three-month and year-to-date (YTD) returns. They also have minimum initial investment within $5000 and low expense ratios.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

T. Rowe Price Japan PRJPX seeks capital appreciation for the long run by investing the majority of its assets in securities of companies which are based in Japan. PRJPX invests in a variety of Japanese companies and industries, irrespective of their size.

The fund has three-month and YTD returns of 10.2% and 17.5%, respectively, an expense ratio of 1.02% as compared to the category average of 1.33%. PRJPX has a Zacks Mutual Fund Rank #1.

Fidelity Japan FJPNX seeks capital appreciation for the long run. FJPNX invests a lion’s share of its assets in equity securities of Japanese companies as well as in those companies which are economically based in Japan. The fund generally takes into account the industry position and financial condition as well as economic and market conditions of each of the companies before investing.

The fund has three-month and YTD returns of 10.6% and 17.3%, respectively, an expense ratio of 0.78% as compared to the category average of 1.33%. FJPNX has a Zacks Mutual Fund Rank #2.

Rydex Japan 2x Strategy A (RYJSX - Free Report) seeks to provide investment results that correlate the performance of 200% of the fair value of the Nikkei 225 Stock Average. RYJSX invests the majority of its assets in securities of companies in the underlying index. RYJSX also invests in derivatives and other instruments, which provide similar returns to that of the underlying index. It is a non-diversified fund.

The fund has three-month and YTD returns of 13.3% and 23.9%, respectively, an expense ratio of 1.51% as compared to the category average of 2.02%. RYJSX has a Zacks Mutual Fund Rank #1.

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