Lion Global Investors (LGI) and Nomura Asset Management have launched the first Japan active exchange-traded fund (ETF) on the Singapore Exchange S68 (SGX), as Japan’s economy experiences a revival spurred by domestic macroeconomic strength and an emergence from deflation.
The Lion-Nomura Japan active ETF will be powered by artificial intelligence (AI), and will offer investors the exposure to 50-100 securities listed in Japan. The initial offering period (IOP) is from Jan 5 to Jan 25 at an issue price for each unit at $1.
It will list on the SGX on Jan 31, and will be available in both Singapore and US dollar denominations under the codes JJJ and JUS respectively.
At the launch of the active ETF on Jan 12, chief investment officer of LGI Teo Joo Wah, says that the intention of an active ETF as opposed to those that are passively listed, is to track the index in a “cost-effective way” in order to outperform the market.
“This ETF will actually select the best stocks, or the best Japanese stocks in this case, for you,” says Teo.
Teo delivered his keynote alongside Nomura’s managing director and CEO, Takahiro Kawabe, who highlights that the Japan active ETF covers a wide range of sectors from advancement technology and directories to traditional industries.
See also: China real estate, global economic growth to stabilise in 2024: IMAS survey
While the US and India may be more attractive places for investors to invest in, Kawabe makes a pitch for investors to look to Japan for its cutting edge technology, and strong stable economy.
The speeches were followed by a panel discussion comprising the Monetary Authority of Singapore (MAS)’s head of AI development Dr Li Xiu Chun, general manager of the Japan Exchange Group Kazuhiko Yoshimatsu, SGX’s market strategist Geoff Howie, and LGI’s head of AI investments Ong Ai Ling.
The fund is actively managed, and seeks to invest mainly in equity securities listed on the Japanese exchange based primarily on the results from LGI and Nomura’s proprietary AI and machine learning models that look at fundamental, technical, qualitative and quantitative analyses.
See also: SGX posts record commodity derivatives for November; sees investor reallocation to REITs
LGI’s Ong explains that the Lion-Nomura AI model can easily do the job of 100 analysts in trawling through the hundreds of thousands of data points that the 3,800 listed companies on the Japanese exchange creates daily.
While most passive ETFs track an index which is only rebalanced semi-annually or once a quarter at best, the active ETF powered by AI has a monthly portfolio rebalance, Ong explains.
“Our data points are very dynamic and take all the market movements into account every single day, so that would basically be one of the key reasons why we wanted to do it via AI, we can be so much more dynamic about things,” says Ong.
Some questions around risks of using an AI to power the fund were raised, particularly around the potential of a concentration risk. But Ong maintains that each fund management house will have its own proprietary techniques with different features, factors and parameters, which will result in their AI models behaving “quite differently”.
Finally, on the selection of Japan as a market, Ong says that investors who are looking to have a healthy portfolio should look to diversify into other markets.
The panel discussion was moderated by former senior managing director of the Singapore Exchange, Chew Sutat, who, in one of his regular columns in The Edge Singapore, called Japan the "dark horse" of 2023 ahead of most other pundits.
Last December, LGI and Nomura signed a memorandum of understanding to expand their collaboration among their asset management business in Asia. LGI is a wholly-owned subsidiary of OCBC Bank, with $66.5 billion assets under management (AUM) as at Sept 30, 2023.
Investors may subscribe to the ETF through OCBC ATMs, internet banking, mobile banking, and participating dealers including iFAST Financial, Moomoo Financial, OCBC Securities, Phillip Securities and Tiger Brokers.
