By Pritu Makan
The FNB ETN provides investors with ZAR-denominated exposure to the MSCI Japan Index which is designed to measure the
performance of the large and mid-cap segments of the Japanese market. With 179 constituents, the index covers ~85% of the
free float-adjusted market capitalisation in Japan.
Investment strategy
Investing in a Japan market tracker offers exposure to the world's second-largest developed stock market, which is experiencing
a resurgence driven by strong corporate governance reforms, increased shareholder returns (buybacks/dividends), and a shift
from deflation to inflation. As of mid-2026, the Nikkei 225 has reached new all-time highs due to increased foreign investment
and pro-business policies. Japan is also one of the world's most resilient and export-driven economies, bolstered by advanced
manufacturing capabilities, internationally recognised brands, and a formidable track record of technological innovation.
Advantages
- Clients benefit from the flexibility of an exchange-traded investment which provides access to this segment of the market with a single transaction, bypassing the administrative and cost hurdles of direct offshore investment.
- The instrument provides exposure to a broad spectrum of sectors with the Japanese market, enhancing diversification benefits.
- Japan is undergoing its most significant structural shift in nearly three decades, with the end of the negative interest rate policy (NIRP) by the Bank of Japan (BoJ) and the Tokyo Stock Exchange's (TSE) price-to-book ratio reform campaign, i.e. to address valuations below 1 times price-to-book.
- As such, there has been significant push for structural corporate governance reforms with the TSE driving companies to improve profitability, capital efficiency, and shareholder value, resulting in higher dividends and stock buybacks.
- Japanese companies are seeing solid earnings growth, with better upward revisions than many other developed markets. The exit from decades of deflation allows domestic corporates to regain pricing power, supporting a robust performance across the breath of the market.
- The region also has a strong footing in semiconductor supply chains, automation, and advanced manufacturing, benefitting from global capital expenditures in AI and factory automation.
Risks
- The strategy is fully exposed to Japanese equities and their inherent risks (including currency fluctuations, geopolitical tensions, and varying regulatory environments), which means that returns could be volatile, and capital drawdown is a risk.
- The index is heavily weighted towards a few sectors (industrials being the biggest exposure; export-heavy firms in the index are highly sensitive to trade barriers and global supply-chain disruptions), meaning a downturn in one sector can disproportionately affect the entire fund.
- There is also high stock-level concentration risk with the top ten constituents making up ~27.9% of the index.
FNB Stockbroking and Portfolio Management View
- This ETN provides investors with a low-cost option to gain exposure to a broad spectrum of large and mid-cap Japanese equities. Japan's investment case is increasingly framed around economic security and technological innovation, with niche opportunities in defence infrastructure, energy self-sufficiency, and supply-chain resilience. Key thematic opportunities include AI supply chains, semiconductors, robotics, infrastructure, and energy - areas receiving significant policy support, with a preference for quality, growth, and high free cash flow yield companies.
- In terms of performance, the MSCI Japan Index has delivered a total return of ~43.9% over the trailing 12 months to April 2026, with a strong ~10.8% year-to-date contribution in 2026 alone, reflecting a sustained and broadening rally driven by three converging themes (namely, Japanese companies' critical positioning in the global AI supply chain, a structural re-rating of the financial sector as the Bank of Japan's normalisation cycle widens net interest margins and robust macroeconomic fundamentals.
- While the end of ultra-loose monetary policy also introduces inherent currency volatility, this risk can be managed through either the quanto or compo ETN framework.
The FNB ETNs
FNB has a range of locally listed exchange-traded notes (ETNs) that track the performance of globally listed shares, indices and funds. For example, FNB's Netflix ETNs (NFETNC and NFETNQ) track the performance of the US listed Netflix share through an instrument listed on the JSE. If the Netflix share price increases so will the price of the local FNB Netflix ETNs. By investing in the FNB Netflix ETNs you benefit from the movement of the global Netflix share without having to take your money offshore or having to spend a large amount of money to buy a single share.
