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Japan's Economy Grows for Three Quarters: 3 Fund Picks

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Per the latest data from Japan’s Cabinet Office, the country’s economy witnessed faster-than-expected growth in the second quarter of the year. The country’s GDP rose 0.4% in the period between April and June, growing for the third consecutive quarter. Further, the metric also beat analysts’ expectations of growth of just 0.1%.

Such a rise in GDP was achieved on the back of solid consumer spending and capital expenditure. Moreover, shoppers in Japan are making more purchases before the expected rate hike in October. Notably, enthronement of Emperor Naruhito, which ushered in a new imperial era in Japan also led to significant contribution to the country’s GDP. Analysts believe that the 10-day holiday for celebrations boosted the metric.

Japan remained one of the most-preferred places for investing in recent times. The Investment Association’s (IA) Japan fund sector has returned 76.7% on average over the past five years. Furthermore, The IA Japanese Smaller Companies sector emerged as one of the best-performing sectors with an average return of more than 100% over the past years.

Under such circumstances, investing in mutual funds with significant exposure to Japan seems prudent.

Low Unemployment Level in Japan

Japan’s ministry of Internal Affairs and Communications reported on Jul 29 that unemployment rate in the country dropped to 2.3% in the month of June. The jobless rate dropped to the current level from 2.4% the month earlier.

Further, the country’s ministry of Health, Labor and Welfare also stated that the job availability ratio stood at 1.61. This means that for every 100 job seekers in the country, there are 161 job openings.

An increasing number of women in the country have been participating aggressively in job search and this has boosted its overall job scenario. The total number of people employed hit a record 67.5 million in June.  Of that huge workforce, approximately 30 million were women, the highest level since 1953.

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 year-to-date (YTD) 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).

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

This Zacks sector – Japan-Equity product has a history of positive total returns for more than 10 years. Specifically, the fund's return over the YTD benchmark is 9.1%. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FJSCX carries a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 0.94%, which is below the category average of 1.26%.

Matthews Asia Growth Fund (MPACX - Free Report) seeks to achieve its investment objective by investing the majority of its assets in preferred and common stocks of companies located in Asia. It may also invest in convertible securities of Asian companies. MPACX seeks capital growth for the long run.

This Zacks sector – Pacific Rim-Equity product has a history of positive total returns for more than 10 years. Specifically, the fund's return over the YTD benchmark is 16.3%. To see how this fund performed compared with its category, and other 1 and 2 Ranked Mutual Funds, please click here.

MPACX carries a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 1.10%, which is below the category average of 1.20%.

Fidelity Japan Fund (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 the economic conditions of Japan.

This Zacks sector – Japan-Equity product has a history of positive total returns for more than 10 years. Specifically, the fund's return over the YTD benchmark is 13.4%. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FJPNX carries a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 1.05%, which is below the category average of 1.26%.

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