Japan has been mired in an economic slump for decades. Despite keeping its benchmark interest rate below 1% since 1995—and at or below 0% or below for more than a decade—GDP growth rates have struggled to consistently stay in positive territory.
That’s why investing in Japanese stocks has been mostly an exercise in futility for the past 30 years.
But as Warren Buffett has discovered, things are finally changing in Japan, or to use the title of an old Bob Dylan song, “The Times They Are A-Changin’.”
Here’s how that sets you up for a great investment opportunity…
Buffett Does It Again
Buffett has gone shopping in the stock bargain basement across the Pacific known as Japan. His surprise bet on five Japanese companies has nearly tripled in size to, $17 billion, in under three years. The surge partially reflects the buying of more shares, but also the companies’ stock prices soaring to multi-decade highs.
Buffett’s Berkshire Hathaway (BRK.B) conglomerate disclosed 5% stakes in five Japanese trading houses—Itochu (ITOCY), Marubeni (MARUY), Mitsubishi (MSBHF), Mitsui (MITSY), and Sumitomo (SSUMY)—in August 2020. Berkshire has ramped up those positions to about 7.4% across the board, Buffett disclosed in May.
Since Buffett’s original purchase—at what he called “ridiculously” cheap valuations—the five stocks have gained, on average, in excess of 180%!
This is representative of what is going on with Japanese stocks as a whole recently: Japan’s Nikkei 225 index has jumped about 27% this year, outstripping the gains for the S&P 500 (18.6%). The Nikkei has not been this high for more than 33 years!
So how can you join Buffett’s profitable foray into Japan, while picking up a decent dividend as well? Let me show you…
Aberdeen Japan Equity Fund
You can do so through a closed-end fund: the Aberdeen Japan Equity Fund (JEQ).
Taking a close look, we find that the JEQ portfolio is heavily invested in large- and mega-cap stocks. These are largely quality growth stocks, with some value there too.
Diving into the fund’s sector breakdown, its 20% allocation to the tech sector is about 6% more than you’d find in a plain vanilla Japanese equity fund portfolio. Cyclicals are slightly underweight, while defensive sectors, including consumer staples (12.2%) and healthcare (11%) are overweight. And industrial stocks—the traditional strength of the Japanese economy—have an 18% allocation.
JEQ’s top position is the entertainment giant, Sony (SONY); some of its other top holdings include the technology-related firms Advantest (ATEYY) and Keyence (KYCCF), the insurance firm Tokio Marine (TKOMY), and the…
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