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Japan's Economy on Path to Recovery: 3 Fund Picks

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Corporate capital expenditure in Japan rose an impressive 12.8% in the second quarter. This marked its highest level in about 12 years. Such developments raised hopes of an economic recovery led by increase in business spending.

Further, Japan’s Services Purchasing Managers Index surged to a four-month high in August. Under such circumstances, investing in mutual funds from Japan seems prudent.

Corporate Capital Expenditure Highest Since 2006

Per the latest report by Japan’s Ministry of Finance (MOF) on Aug 27, corporate capital expenditure in the country surged to its highest levels since 2006 in the April-June period. This not only implies that business spending remained robust in the second quarter but also raised hopes of a strong GDP growth in Japan in the second quarter, led by its private sector.

Growth in investment was bolstered by increased spending on production of cars and electronic components among other things. A business-led recovery in the Japanese economy seems imminent at this point. Further, this marked the seventh consecutive quarter of annualized growth in capital expenditure.

Economists believe that GDP would inch higher after the MOF capex data is used to update the GDP figure for the April-June quarter. Further, Nomura estimates that the country would witness 2.3% growth in the second quarter.

Japan’s Service and Business Activity Springs Back to Life

Per the latest report on Sep 2, the Markit/Nikkei Japan Manufacturing Purchasing Managers’ Index surged to a seasonally adjusted level of 52.5 in August on the back of strength in new orders. This also marks the 24th straight month of increase in manufacturing activity in the country and points to robust business activity in Japan.

Meanwhile, service activity hit a four-month high in August. On Sep 3, the Markit/Nikkei Japan Services Purchasing Managers Index surged to 51.5 in August from 51.3 in July. Such gains were achieved on the back of higher sales and new store openings across the country.

3 Best Fund Choices

We have, thus, selected three Japan mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain from such factors. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.

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.

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).

T. Rowe Price Japan (PRJPX - Free Report) seeks capital appreciation over the long run by investing the majority of its assets in securities of companies based in Japan. PRJPX invests in various Japanese companies and industries, irrespective of their size.

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.

PRJPX has a Zacks Mutual Fund Rank#1 and an annual expense ratio of 0.97%, which is below the category average of 1.27%. The fund has three and five-year returns of 14.8% and 11.7%, respectively.

Fidelity Japan (FJPNX - Free Report) seeks long-term capital growth. The fund invests a large portion of its assets in securities of companies in Japan. FJPNX invests in common stocks of companies that are influenced by economic conditions of Japan.

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.

FJPNX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.82%, which is below the category average of 1.27%. The fund has three and five-year returns of 8.8% and 7.2%, respectively.

Hennessy Japan Investor (HJPNX - Free Report) seeks appreciation of capital in the long run. The fund invests the majority of its assets in securities of companies from Japan. HJPNX is a diversified fund and invests in a variety of assets.

This Sector - Pacific Rim-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.

HJPNX has a Zacks Mutual Fund Rank #1 and three and five-year returns of 12.5% and 13.8%, respectively.

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