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3 Japan Mutual Funds to Buy On Steady Economic Expansion

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Japan registered economic expansion for eight quarters on the trot, courtesy of strong business spending and increase in investments in technology and machinery. Further, unemployment has been the lowest since April 1993. Also, influx of money into the economy in the form of consumer and private spending coupled with business-friendly economic and monetary policies provided the required stimulus to Japan’s economy.

In view of the favorable economic conditions, picking mutual funds that invest in Japan seems prudent.

8th Straight Quarter of Growth

Japan’s economy grew at an annualized rate of 1.6% in the fourth quarter compared with the preliminary estimate of 0.5% and steering past economists’ expectations of 0.9%. The upside was primarily driven by an upward revision in key business areas. This also reflects a 0.4% quarter-over-quarter increase, up from the initial reading of 0.1% and 0.3% registered in the third quarter. 

The economy has improved for eight consecutive quarters, the longest streak since a 12-quarter expansion ended in 1989 — the period of Japan’s economic bubble. Bank of Japan’s easy money policies and Prime Minister Shinzo Abe’s stimulus measures are other factors conducive to growth.

Factors Contributing to Growth

The upward revision was primarily backed by faster-than-expected rise in capital expenditure, driven by robust investment in technology, and information and communications like smartphones and production machinery such as robots and labor-saving technology.

Capital expenditure increased 0.7%, marking the fifth straight quarter of growth. Another key factor that contributed to upward GDP revision was a buildup in private inventory, caused by rising stock of crude oil and natural gas, steel products, electronics parts and devices.

Moreover, private consumption grew 0.5% against a contraction of 0.6% in the previous quarter and in line with preliminary estimates. Given this scenario, policymakers are keen on creating a virtuous growth cycle, wherein higher wages can act as a stimulus to increased consumer spending, which will help boost business investments and inflation. Also, jobless rate in Japan fell to a 25-year low of 2.4% in January on the highest number of job openings in as many as 40 years.

Further, exports advanced 9.3% in December after registering an increase of 16.2% in November, per the country’s Ministry of Finance. Exports rose for 13 straight months for the first time. Additionally, its manufacturers’ confidence climbed from 27 in December to 35 in January, reaching its best level in 11 years, per a Reuters Tankan poll. Strong rise in exports and robust manufacturer sentiment raised optimism for steady economic growth.

Finally, Bank of Japan’s governor, Haruhiko Kuroda, on Mar 2 raised investor concerns when he, for the first time, flagged chances of an exit from monetary stimulus if the 2% inflation target was met in fiscal 2019, a remark he later backtracked from. 

3 Best Mutual Funds to Buy Now

Given the positives, we have highlighted three Japan mutual funds poised to gain significantly from the country’s burgeoning economy and high consumer spending. These funds also carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three and one-year returns. Additionally, the minimum initial investment is within $5000.

We expect these funds to outperform 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.

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

Fidelity Japan Smaller Companies (FJSCX - Free Report) seeks capital growth for the long run. It invests mainly in small-cap companies that are economically based in Japan. These small-cap companies have market cap similar to those included on the JASDAQ Index or the Russell/Nomura Mid-Small Cap Index. FJSCX may also invest in large-cap companies.

This Sector - Japan - Equityproduct has a history of positive total returns for over 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FJSCX has a Zacks Rank #1 and an annual expense ratio of 0.94%, below the category average of 1.26%. The fund has three and one-year returns of 17.1% and 30.1%, respectively.

ProFunds UltraJapan Fund Service Class (UJPSX - Free Report) seeks daily investment results that correspond, before fees and expenses, to 200% of the performance of the Nikkei 225 Stock Average. The fund provides leveraged exposure to the large-cap, Japan-based Nikkei 225 Stock Average.

This Sector - Japan - Equity product has a history of positive total returns for over 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

UJPSX has a Zacks Rank #1 and three and one-year returns of 1.1% and 19.2%, respectively.

Rydex Japan 2x Strategy A (RYJSX - Free Report) 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. It also invests in derivatives and other instruments whose performance is expected to correspond to that of the underlying index.

This Sector - Japan - Equityproduct has a history of positive total returns for over 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

RYJSX has a Zacks Rank #2 and an annual expense ratio of 1.52%, below the category average of 2.01%. The fund has three and one-year returns of 16.1% and 40.6%, respectively.

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