5 Things You Need To Know Before Investing In The Lion-Nomura Japan Active ETF (Powered by AI)

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Soon, Singapore investors will have a new way to invest in Japan. Scheduled to start trading on SGX on 31 Jan 2024, the Lion-Nomura Japan Active ETF (Powered by AI) will be the only Japan-focused ETF listed in Singapore. Not only that, it will also be the first actively managed ETF and AI-powered ETF on SGX.

This will give Singapore investors greater variety, as gaining exposure to Japan is relatively hard to come by. Many Asia-focused ETFs exclude Japan (referred to as ex-Japan) as it is the only major developed economy in the region. Instead, such ETFs tend to centre their investment strategies on developing Asian economies.

For those interested, here are 5 things we should know about the Lion-Nomura Japan Active ETF (Powered by AI) before investing.

#1 What Does The Lion-Nomura Japan Active ETF (Powered by AI) Invest In?

Those who invest in the Lion-Nomura Japan Active ETF (Powered by AI) can expect long-term capital growth through active investments in Japanese equities, diversified across sectors and market capitalisation.

This will include many names we may also be familiar with, such as Tokio Marine and Sompo (Financials), Nippon Steel (Materials), Mitsui (Industrials), Mazda and Yamaha Motor (Consumer Discretionary), and Daiwa House (Real Estate).

Note: Securities referenced are not intended as recommendations to buy or sell securities.

The investment strategy will be primarily driven by results from proprietary AI and Machine Learning models (termed AI Models) that are either developed by or licensed to Lion Global Investors and Nomura Asset Management.

Investors should be comfortable taking on concentrated exposure to a single stock market, Japan, as well as the volatility and risks that comes with active fund management.

As the fund manager, Lion Global Investors (LGI) has the task of managing the ETF’s assets. With over $69.9 billion in Assets under Management (AUM), LGI is one of Southeast Asia’s leading asset managers.

Acting as the Investment Advisor, Nomura Asset Management, Japan’s largest ETF issuer, will provide advice and investment recommendations to LGI for the ETF portfolio. Having established its Innovation Lab as early as 2017, Nomura Asset Management has deep AI capabilities and has launched AI-powered investments.

#2 Why Should Singapore Investors Be Interested In Japan Stocks?

As the world’s fourth largest economy, exposure to Japan is arguably essential to achieve a globally diversified portfolio.

The reason for Japan’s exclusion among many Asia-centric ETFs, being the only developed major Asian economy, also gives you potentially two more reasons to invest. Japan is a good alternative for investors who 1) prefer exposure to developed economies but believe Europe is a risky bet now, and 2) want Asian exposure but prefer to steer away from China right now.

The Japanese stock market, comprising nearly 4,000 listed companies, and with a market capitalisation of 829.2 trillion yen ($7.8 trillion), is within the top 5 largest stock markets in the world. (Source: Japan Exchange Group as of December 2023)

As the easternmost Asian country, Japan is also romanticised as the land of the rising sun. This can be an apt description of its innovative and efficiently managed business sectors, spanning technology, automotive and electrical appliances, to banking, healthcare and F&B.

In 2023, the Japanese stock market (TOPIX Index) rose over 25% – beating Singapore’s Straits Times Index (STI) and the MSCI All Country Asia ex Japan Index.

In contrast, the Japanese Yen (JPY) depreciated less than 10% against the Singapore Dollar (SGD). (Source: Google Finance 9 Jan 2024) If the Bank of Japan tightens its ultra-loose monetary policy in 2024, it could catalyse a Japanese Yen rebound.

If you need further proof of its investment merits, foreign investors have been pouring money into Japan in 2023. This includes the most famous investor in the world, Warren Buffet, who has set his sights firmly on Japan – steadily raising his stake to over $20 billion in Japanese stocks (Source: Forbes June 2023), and eyeing further investments.

Furthermore, Japan’s allure as a dream tourist destination, spurred by the depreciating yen, has also stimulated inflation. After more than 30 years of stagflation, Japan’s inflation is estimated to be 3.21% in 2023– the highest since 1981. (Source: Statista as of 9 November 2023)

#3 How Do Active ETFs Work?

Unlike all the existing ETFs on SGX, which are passively managed, the Lion-Nomura Japan Active ETF (Powered by AI) will be the first actively managed ETF.

This rides on a wave of active ETFs globally. Since 2017, global AUM of active ETFs has risen close to 400% to US$412 billion today. Moreover, active ETFs have also steadily gained their share of portfolio allocation among investors.

As with any actively managed fund, a fund management team will use investment research and strategies to proactively buy and sell its underlying portfolio. The objective is to beat the market returns. In this case, the reference benchmark is the Tokyo Stock Price Index (TOPIX).

Lion Global Investor’s fund management team is comprised of 3 key executives with nearly 40 years of combined experience in AI and data science within the financial industry. They will be supported by Nomura Asset Management.

Investors benefit by enjoying a competitive management fee of 0.7% p.a.

#4 What Is The Investment Strategy For The Lion-Nomura Japan Active ETF (Powered by AI)?

As the first AI-powered ETF in Singapore, the Lion-Nomura Japan Active ETF (Powered by AI) will lean on results from proprietary AI models developed or licensed to either Lion Global Investors or Nomura Asset Management.

By tapping on AI, while still enjoying human oversight, the ETF will be able to identify quality stocks more efficiently and invest more effectively.

Only the top 1,000 most liquid Japanese stocks on the Tokyo Stock Exchange and the Nagoya Exchange are eligible investments – termed its “investible universe”.

The AI models can evaluate hundreds of factors for investment selection and work much more quickly than humans. It conducts a monthly investment analysis using fundamental, technical, qualitative, quantitative and other relevant datasets.

It will incorporate machine learning functions to learn and improve this process without explicit programming. Human fund managers will also play a role in refreshing the portfolio each month.

A score is assigned to each stock in the “investible universe” based on its potential to outperform the broader Japanese market over the next 1 to 3 months.

The Lion Global Investors fund management team together with the Nomura Asset Management team then select and assign weights to the stocks based on their overall AI Model scores and various risk metrics. The final portfolio will comprise 50 to 100 stocks.

Being an actively managed ETF, the idea is also to achieve returns that beat a benchmark passive index (i.e. Japan’s TOPIX benchmark).

#5 How To Invest In The Lion-Nomura Japan Active ETF (Powered by AI)?

Applications for the IOP opened on 5 January 2024 and will end on 25 January 2024. Each unit is $1.00 (for SGD Class Units), and the minimum investment amount is for $1,000 or for 1,000 units.

Investors who are interested can apply for units through 1) Participating Dealers, 2) OCBC ATM, internet and mobile banking during the initial offer period (IOP). Participating Dealers for the IOP include iFAST, Moomoo, OCBC Securities, POEMS and Tiger Brokers.

The Smarter Way To Start Investing In Japan

The Lion-Nomura Japan Active ETF (Powered by AI) marks a significant and innovative addition to Singapore’s investment landscape. Offering a unique opportunity for investors to gain exposure to Japan’s vibrant market through an actively managed and AI-powered approach.

Post-listing, after 31 January 2024, investors can trade either the SGD trading counter (SGX: JJJ) or the USD trading counter (SGX: JUS), in their respective currencies, on SGX.

At the same time, investors should heed risks that come from concentrated exposure to a single country. Currency risks will also be a consideration as the fund’s base currency is in Japanese Yen (JPY), and will be traded in both SGD and USD.

Finally, adopting an active investment strategy, returns may not track the overall Japanese market. This could mean both higher returns, as well as potentially lower returns.

Disclaimer – Lion Global Investors Limited

This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. It is for information only, and is not a recommendation, offer or solicitation to deal in any capital markets products or investments and does not have regard to your specific investment objectives, financial situation, tax position or particular needs.

You should read the Prospectus and Product Highlights Sheet for the Lion-Nomura Japan Active ETF (Powered by AI) (“ETF”) which are available and may be obtained from Lion Global Investors Limited (“LGI”) or any of the appointed Participating Dealers (“PDs”), for further details including the risk factors and consider if the ETF is suitable for you and seek such advice from a financial adviser if necessary, before deciding whether to purchase units in the ETF. Investments in the ETF are not obligations of, deposits in, guaranteed or insured by LGI or any of its affiliates and are subject to investment risks including the possible loss of the principal amount invested. The ETF is an actively managed exchange traded fund. Please refer to the Prospectus for further details, including a discussion of certain factors to be considered in connection with an investment in an actively managed exchange traded fund.

The performance of the ETF, the value of its units and any accruing income are not guaranteed and may rise or fall. Past performance, payout yields and payments and any predictions, projections, or forecasts are not indicative of the future or likely performance, payout yields and payments of the ETF. Any extraordinary performance may be due to exceptional circumstances which may not be sustainable. Any dividend distributions, which may be either out of income and/or capital, are not guaranteed and subject to the manager of the ETF’s discretion. Any such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value of the ETF. Any references to specific companies or securities are for illustration purposes and are not to be considered as recommendations to buy, sell or otherwise invest in such securities or the products or services of such companies. It should not be assumed that investment in such specific securities will be profitable. There can be no assurance that any of the allocations or holdings presented will remain in the ETF at the time this information is presented.

You should independently assess and conduct your own investigation of the relevance, accuracy, adequacy and reliability of any information, opinion or estimates, graphs, charts, formulae or devices provided and seek professional advice on them. Any information, opinions, estimates, graphs, charts, formulae or devices provided are subject to change or correction without notice and are not to be relied on as advice. The information and opinions contained in this advertisement or publication have been derived from or reached from proprietary or non-proprietary sources believed in good faith to be reliable but have not been independently verified. LGI makes no guarantee, representation or warranty, express or implied, and accepts no responsibility for the accuracy or completeness of this advertisement or publication. No warranty is given and no liability is accepted for any loss arising directly or indirectly as a result of you acting on such information.

Where pro-forma portfolio diagrams and/or charts and constituent weightage are displayed in this advertisement or publication (if any), such pro-forma diagrams and/or charts and constituent weightage are illustrative only and do not represent the actual holdings of the ETF at any point in time and are subject to changes at LGI’s discretion. You should refer to the portfolio holdings to be displayed on LGI’s website every month for more information on the actual holdings of the ETF (as at the date specified) in the previous month or should approach LGI for more information on the ETF. The sectoral representation in the pro-forma portfolio diagrams and/or charts (if any) also do not reflect the actual or future performance of the ETF.

The ETF may, where permitted by the Prospectus, invest in financial derivative instruments for hedging or for the purposes of efficient portfolio management. The ETF’s net asset value may have higher volatility as a result of its narrower investment focus on a limited geographical market, when compared to funds investing in global or wider regional markets. LGI, its related companies, their directors and/or employees may hold units of the ETF and be engaged in purchasing or selling units of the ETF for themselves or their clients.

The units of the ETF are listed and traded on the Singapore Exchange Securities Trading Limited (“SGX-ST”), and may be traded at prices different from its net asset value, suspended from trading, or delisted. Such listing does not guarantee a liquid market for the units. You cannot purchase or redeem units in the ETF directly with the manager of the ETF, but you may, subject to specific conditions, do so on the SGX-ST or through the PDs.© Lion Global Investors® Limited (UEN/ Registration No. 198601745D). All rights reserved. LGI is a Singapore incorporated company and is not related to any corporation or trading entity that is domiciled in Europe or the United States (other than entities owned by its holding companies)

Disclaimer – JPX Market Innovation & Research, Inc.

The TOPIX Index Value and the TOPIX Marks are subject to the proprietary rights owned by JPX Market Innovation & Research, Inc. or affiliates of JPX Market Innovation & Research, Inc. (hereinafter collectively referred to as “JPX”) and JPX owns all rights and know-how relating to TOPIX such as calculation, publication and use of the TOPIX Index Value and relating to the TOPIX Marks. JPX shall not be liable for the miscalculation, incorrect publication, delayed or interrupted publication of the TOPIX Index Value.