Japanese high dividend pie (value stocks) opinions

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1

Since we don’t have options for value-tilted Japan ETFs I created this pie that replicates the MSCI Japan High Dividend Index. Here’s the pie.

  • The index contains less than 50 stocks so they fit into a pie.
  • Dividend stocks are value (cheap) and quality stocks, so the pie has a value and profitability tilt (as per the Fama-French equity factors).
  • The pie is equal weighted (instead of market cap weighted as the index) so that it’s easy to replicate and requires less minimum investment .
  • Equal weighted should mean that the pie targets the value factor a bit more.
  • Unfortunately T212 does is missing some of the smaller stocks of the index (~5) so I didn’t add them.

Thoughts?

Link to the pie
Index factsheet

1 Like
2

Interesting!
How does the metholodogy target the value and profitability tilts?

1 Like
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How does the metholodogy target the value and profitability tilts?

Basically dividend paying stocks in general have exposure to the value and profitability factors. Since the index my pie tracks contains dividend stocks the results is the same.

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To confirm this I have run a factor regression on the index data. Here are the results (R^2 = 85%).

                 coef    std err          t      P>|t|      [0.025      0.975]
------------------------------------------------------------------------------
Intercept      0.0505      0.095      0.534      0.594      -0.136       0.237
MKT            0.8560      0.030     28.585      0.000       0.797       0.915
SMB           -0.0278      0.042     -0.660      0.510      -0.111       0.055
HML            0.3351      0.079      4.262      0.000       0.180       0.490
RMW            0.2204      0.109      2.030      0.043       0.007       0.434
CMA            0.2250      0.105      2.153      0.032       0.019       0.431
WML           -0.1542      0.046     -3.367      0.001      -0.244      -0.064

As you can see HML (value), RMW (profitable stocks) and CMA (stocks that invest conservatively) exposure is high. WML (momentum) is negative but that’s expected from a value-tilted portfolio.

This is on the index data however. As mentioned above my pie equal weights the stocks. The effects should be increased SMB (small stocks), maybe a bit increased MKT (market) and decreased WML (momentum).

4

I’m not sure I’d want to hold a pie full of OTC stocks but this is an interesting idea.

As I understand it (not especially well), now might be a good time to invest in Japan.

Some investment trusts focus on value in Japan. Nippon Active Value is an example with a good record since launch but it’s more small/mid than large caps.

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Nippon Active Value is an example with a good record since launch but it’s more small/mid than large caps.

Thanks. I’ll check it out.