By Junko Fujita
TOKYO Japan's Simplex Asset Management said it will launch exchange-traded funds focused on undervalued stocks, including the first aimed at shares below book value, reflecting demand for exposure to the wave of corporate reform rallying Japanese markets.
Japan's Nikkei is up 24% this year, against a 13% gain for world stocks, and foreigners have poured some 7.7 trillion yen ($53 billion) into the market as a push to tighten up flabby balance sheets is driving buybacks and price gains.
Years of habitually conservative management and a build-up of cross shareholdings has resulted in many firms trading below the value of their assets less liabilities. Some 189 companies in the Topix 500 trade below book value, compared to 17 in the S&P 500, according to Simplex.
A rare call from the Tokyo bourse to improve capital efficiency at such firms is partly behind the recent rally as investors have taken it a signal authorities are serious about unlocking value after decades of underperformance.
The funds launch next week and are focused on the areas of the market where many investors see the most potential. One of the funds, Simplex PBR Improvement over 1x ETF, will contain about 500 stocks that average 0.7 times their book value.
Another fund, Simplex Strg Shareholding Disposal Promotion ETF, includes about 200 companies with a web of cross-shareholdings, a common practice in Japan that has been under scrutiny as part of the push for capital management changes.
"The time has come to launch these funds," said Hiromasa Mizushima, chief executive officer for Simplex Asset Management.
"We are seeing a potential for a big change in the market that would change these undervalued companies."
The funds are the first of their kind in Japan, with the Tokyo Stock Exchange only recently allowing actively-managed ETFs, which hold selected stocks rather than tracking indexes.
Simplex is also launching a third ETF focused on stocks where executive pay is tied to corporate performance.
($1 = 146.2300 yen)
(Reporting by Junko Fujita; Editing by Tom Westbrook and Miral Fahmy)