Volume Dwindles for New Bank of Japan ETFs in Slow Trading Start

  • There’s little incentive to buy now, Matsui Securities says
  • Central bank currently spends $11 million a day on such funds

Trading has thinned in the first Japanese exchange-traded funds designed to the specifications of the nation’s central bank.

ETFs started in the past two weeks by Nomura Asset Management Co., Daiwa Asset Management Co. and Nikko Asset Management Co. saw a combined 37.5 million yen ($341,000) in turnover on Thursday, according to data compiled by Bloomberg. That compares with about $1.2 billion for the nation’s most-traded product, a leveraged fund also operated by Nomura.

In a kind of social-engineering experiment, the BOJ started spending $2.7 billion a year from April on ETFs tracking companies that use their cash hoards to raise wages and invest for growth. However, it said it can only buy half of each fund, which means the overall plan to spur inflation and stimulate the economy partly depends on other investors finding the ETFs attractive. And while it’s early days, interest has so far been muted.

“If the BOJ increases how much it purchases, we could see these stocks outperform, but for now there’s little incentive to buy these ETFs,” said Tomoichiro Kubota, a senior analyst at Matsui Securities Co. in Tokyo. “Boosting employee salaries is a plus for the whole economy, but in the short term it results in higher employee expenses.”

When the central bank announced plans in December to purchase ETFs that are “proactively making investment in physical and human capital,” no such funds existed in Japan. Index compilers and money managers then rushed to create products, with the first three ETFs listing since May 19. The BOJ said at the time it would also invest in ETFs tracking the JPX-Nikkei Index 400 while it waited for new products to be developed.

The central bank is currently spending about $11 million a day under the program. Two more ETFs eligible for purchases by the BOJ, managed by BlackRock Japan Co. and Diam Co., are set to list on June 10.

The Next Funds Nomura Enterprise Value Allocation Index and the Daiwa ETF MSCI Japan Human and Physical Investment Index saw a combined $8 million in trading in their debuts. By Thursday, that had dropped to less than $337,000. Nikko Asset’s fund listed May 25 and had about $46,000 of turnover in its first two trading days.

Volume for Daiwa’s ETF may be low because it just started trading recently, Seiya Suzuki, a spokesman for the company, said by phone.

Index Futures

Trading for the Nikko ETF will increase if futures become available for the fund’s underlying index, according to Koei Imai, head of ETFs at Nikko Asset. The ETF tracks the JPX/S&P Capex & Human Capital Index created by Japan Exchange Group Inc. and S&P Dow Jones Indices. Japan Exchange said last month it will “actively consider” listing futures for the gauge.

Even the world’s biggest leveraged ETF got off to a relatively slow start. The Nomura fund averaged about $5.1 million in daily trading in its first month after listing in April 2012. That’s since swelled to about $1.4 billion a day this month through Thursday. The company says it’s unperturbed about volumes for its new BOJ-inspired product.

“One strong characteristic of our index is that it grows and bears fruit over the long term,” Makoto Shiota, head of ETF marketing at Nomura Securities Co., said by phone, talking about the Nomura gauge that its ETF tracks. “It’s not something you buy today and sell tomorrow. We will keep engaging steady investors and explain to them the appeal of the index.”