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Japan GDP Growth Run Longest in 11 Years: 2 Fund Picks

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Japan’s economy expanded for the sixth straight quarter in Q2, marking the longest stretch of uninterrupted growth in more than a decade, as per government data. In fact, the nation saw the fastest GDP growth in more than two years in Q2.

The government for quite some time was trying to propel growth with a stimulus program known as Abenomics, after Prime Minister Shinzo Abe. However, that only helped Japan’s exporters and did little to spur domestic income as well as spending. This time around, however, growth was fueled by an uptick in consumer spending and capital investment, highlighting stronger domestic demand.

With domestic consumption fueling Japan’s economic growth, investing in funds exposed to the region seems judicious.

Inside the Report

As per government data, GDP expanded at an annualized rate of 4% in the second quarter, its highest uptick since January-March 2015. It also steered past expectations as the median estimate by economists was 2.5% annualized growth. In the previous quarter, the economy grew 1%.

The economy expanded for six straight quarters in Q2, while the last time the economy had posted a run of six consecutive quarters was in the January-March 2005 and April-June 2006 period.

A strong uptick in domestic consumption helped compensate for softer exports. Consumer outlays increased 3.7% on an annualized basis, while business investment improved almost 10%. This is a telltale sign that companies are becoming optimistic about growth.

Masaki Kuwahara, a senior economist at Nomura Securities in Tokyo, said that “the strength of domestic demand stands out, especially individual consumption, which was better than I had expected”. He added that “spending appetite has improved as rising stocks added to the wealth effect, although incomes haven’t increased much”.

Invest in These Top 2 Japan Mutual Funds

With Japan’s Q2 GDP blowing past expectations on robust domestic demand, it will be prudent to invest in funds having significant exposure in such an economy. We have, thus, chosen two solid Japan Mutual Funds that flaunt a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive 3-year and 5-year annualized returns, expense ratio below the category average and have minimum initial investments within $5000.

The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why investors should park their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Japan (FJPNX - Free Report) , with a Zacks Rank #2, was incepted in September 1992 and is managed by Fidelity Group. The aim of FJPNX is to seek long-term capital growth. FJPNX invests a large portion of its assets in securities of Japanese issuers. FJPNX invests in common stocks and offers dividends and capital gains annually in December. This Japan - Equity fund, as of the last filing, allocates its funds in two major groups — Foreign Stock and Intermediate Bond. Further, as of the last filing, SOFTBANK SA, MITSUBISHI UFJ FINANCIAL and KDDI CORP were the top holdings for FJPNX.

The Fidelity Japan fund, managed by Fidelity, carries an expense ratio of 0.78%, less than the category average of 1.25%. Moreover, FJPNX requires a minimal initial investment of $2,500.

FJPNX’s returns over the 3, 5 year benchmarks; 3 year 6.4% and 5 year 9.4%. To see how this fund performed compared in its category and other #1 and #2 Ranked Mutual Funds, please click here.  

FJPNX’s performance, as of the last filing, when compared to funds in its category was in the top 17.63% in one year, top 6.4% over the past three years, and in the 9.9% over the last five years.

Rydex Japan 2x Strategy A RYJSX, with a Zacks Rank #1, seeks to provide investment results that correlate to the performance 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 whose performance is expected to correspond to that of the underlying index. This Japan - Equity fund, as of the last filing, allocates its funds in two major groups — Foreign Stock and Intermediate Bond. Further, as of the last filing, GUGGENHEIM STRATEGY FD IP was the top holding for RYJSX.

The Rydex Japan 2x Strategy A fund, managed by Rydex, carries an expense ratio of 1.52%, less than the category average of 1.98%. Moreover, RYJSX requires a minimal initial investment of $2,500.

RYJSX’s returns over the three, five-year benchmarks; three-year 10.7% and five-year 15.9%. To see how this fund performed compared in its category and other #1 and #2 Ranked Mutual Funds, please click here.  

RYJSX’s performance, as of the last filing, when compared to funds in its category was in the top 25.84% in one year, top 11.09% over the past three years, and 18.57% over the last 5 years.

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