Japan-based low-fee global index fund?

[adamu]

I've not made any new investments for months after discovering I was paying more than expected in currency conversions for my Vanguard investments.

I'm now looking to go domestic, but stay globally invested. Ideally I'd like a local version of VT, but the closest I've heard of is ex-Japan funds. I guess an all-in-one fund is not a common investment for most people.

Does anyone know of such a fund? Even on the Tokyo Stock Exchange site, ETFs are split into "international" and "domestic". I want both!

I think I'm going to have to sit down and just go through all available funds, slowly short-listing potentials. Worst case I'll just save up and buy USD in big batches more efficiently and continue buying Vanguard ETFs.

Update: Dec 2018 - there now seems to be a good option, checkout One fund to rule them all?

[adamu]

edit: TLDR summary of the following discussion by jcc:

This thread gets linked from time to time so I'm just going to post a summary of the results(skipping the reasoning which can be found in the long posts)

For all japanese funds, either use morningstar or http://shintaro-money.com/index-cost/ to find the real calculated costs.

Lately eMaxis have slashed costs and seem very good, but tawara, nissei and others offer very competitive rates too.

Investing in total world:

Use a japanese fund that is NOT a fund of international etfs(e.g. if it is packaging VT inside it that's no good). This is to avoid triple taxation. Nissei or tawara or whatever is fine. Generally these track MSCI kokusai ex. japan so if you want real world coverage you should buy up a japanese fund separately. eMaxis slim works here

Investing in US:

Best option is probably buying straight up VOO or similar. Whether you use a US ETF or japanese fund, you'll be taxed twice, and vanguard has lower costs.

If you can't buy VOO(broker doesn't have it or for iDeco), whatever lowest cost fund you can find will work(fund-of-funds are fine here). For rakuten iDeco the rakuten-voo option would be acceptable. For SBI I believe the equivalent is the i-exe offering(?)

Investing in japan:

Lowest cost domestic fund you can find. Tawara is good

Investing in emerging markets:

again lowest cost domestic. AVOID fund-of-international-funds(e.g. stuff like vanguard emerging markets) which will get triple taxed. eMaxis slim is good


ETF vs traditional funds:

Many low cost index funds reinvest dividends internally. This means they generate zero dividends but their value increases instead. This means you get to effectively defer taxation until you sell. With compounding this means that funds that are somewhat more expensive than ETFs will still come out ahead of the ETF if you are holding for a long time(talking at least 5+ years here, generally decades), making them better for buy and hold strategies. Really, if your holding horizon is years, you should probably be using ETF's, if it's decades, traditional funds.

Additionally, using funds instead of ETF's allows you to "expand" your tax free bracket inside your nisa/iDeco accounts.


If I missed anything important I'll try to update it here.

Finally, I'm in no way a professional, this is all just what I figured out from research, translating blogs etc. I can't take responsibility for any losses from this advice, but my personal investments are entirely in line with it

[adamu]

Here's the search result on Morning star for "global index funds including Japan", with clickable links below.

• EXE-i つみたて先進国株式ファンド
• EXE-i つみたてグローバル（中小型含む）株式
• 楽天・全世界株式インデックス･ファンド 『愛称 ： 楽天・バンガード・ファンド(全世界株式)』
• インデックスパッケージ(内外･株式) 『愛称 ： ファンドパック3』
• 全世界株式インデックス･ファンド
• 先進国株式インデックス･ファンド
• 野村 グローバルSRI100 『愛称 ： 野村世界社会的責任投資』

[adamu]

Taking the top 3 as the cheapest, the options are SBI or Rakuten.

With the Rakuten one, it is just wrapping VT for more than double the expense ratio. It would be nice to stick with Vanguard, but I'm not sure paying Rakuten more than 100% of the fee again is something I want to do. First I want to work out whether investing in this 0.24% fund is cheaper than buying the 0.10% VT directly after factoring in currency exchange and stock exchange fees. If it isn't I'll rule it out. Then I need to get a better understanding of the SBI funds to see if they're worth the switch.

[jcc]

If you're buy&holding, you may want to keep in mind that the exchange fees are "one-off" costs bookending your ownership of the stock.

You could treat it as a .1% costs with .25% loads on each end. Over 25 years that's be like a .12% costs per year.

Personally I've just used ex-japan funds and bought some jp index funds separately(I'm not too hot on the jp funds but it does come without currency risk as I plan to be here long-term).

For the ex-japan funds, nissei, tawara and iMaxis slim all have cheap offerings.

Also, be sure to check the hidden costs from portfolio turnover(losses to realized gains) and consider how you want to deal with dividends(the above mentioned three apparently all reinvest internally so you get to let the dividends ride untaxed until the final payout giving better compounding).

I personally haven't gone with direct VT for a handful of reasons that have nothing to do with the currency conversion:

a) taxes are going to be a pain in the ass. Going to get taxed in us and japan then have to get a refund. US will still tax dividends in a nisa and you won't get refunded for that
b) as an etf the dividends are payed out and taxed regularly. That means less money compounding regularly. In the end the taxman gets jis due(just later) but you get less if you have to pay out early.
c) I was uneasy about turnover. Bogle has criticized ETF's for encouraging frequent trading and speculating on indexes(which result in more turnover and thus more realized capital gains), but the turnover for VT is 10% so it doesn't seem too bad.

[adamu]

Hi jcc, thanks for your reply.

If you're buy&holding, you may want to keep in mind that the exchange fees are "one-off" costs bookending your ownership of the stock.

Yes this is exactly the calculation I want to do, but I've not worked out how to do it yet. Difficult because as you said the costs of going direct decrease the longer the fund is held.

reinvest internally so you get to let the dividends ride untaxed until the final payout giving better compounding).

This is a nice feature, but it doesn't look like any global funds do this as far as I can see. If this is a must-have, I'll have to forego the single fund idea and mix-and-match domestic and international, as you have done.

I personally haven't gone with direct VT for a handful of reasons that have nothing to do with the currency conversion:

a) taxes are going to be a pain in the ass. Going to get taxed in us and japan then have to get a refund. US will still tax dividends in a nisa and you won't get refunded for that

True for the NISA, this is a big additional cost that has to be considered in addition to the currency fees. But outside of a NISA, I understand that the US withholding tax is reduced from 20% to 10%, and the other 10% is Japanese tax. So inside a tokutei account this is handled automatically and doesn't result in extra taxes or extra work?

I also wonder how the Rakuten fund, which just wraps VT, handles this.

Another small benefit of using a fund rather than a foreign ETF, is that you can put every last yen into a NISA, without having a couple of thousand left due to the broker enforcing a currency exchange buffer.

[adamu]

I found this article (in Japanese) that said a couple of interesting things:

1. The Rakuten fund does reinvest internally. I'd misunderstood that.
2. In the long rung, going direct with VT is cheaper, but the rakuten fund's higher fees doesn't slow it down as much as expected because of the tax benefits of the dividend reinvestment.

http://siegeljiro.com/rakutenvt-vt

The article models an annual 400,000 yen investment I wonder what the results would be for different amounts (or different assumptions for the market performance).

[RetireJapan]

I found this article (in Japanese) that said a couple of interesting things:

1. The Rakuten fund does reinvest internally. I'd misunderstood that.
2. In the long rung, going direct with VT is cheaper, but the rakuten fund's higher fees doesn't slow it down as much as expected because of the tax benefits of the dividend reinvestment.

http://siegeljiro.com/rakutenvt-vt

The article models an annual 400,000 yen investment I wonder what the results would be for different amounts (or different assumptions for the market performance).

Really interesting, but confirms my lazy rule of thumb that it doesn't really matter what you do as long as it isn't stupid

[jcc]

Yes this is exactly the calculation I want to do, but I've not worked out how to do it yet. Difficult because as you said the costs of going direct decrease the longer the fund is held.

If it was me I'd just say "20 years" and count it as a 0.0125% yearly cost, but maybe I'm being lazy

reinvest internally so you get to let the dividends ride untaxed until the final payout giving better compounding).

This is a nice feature, but it doesn't look like any global funds do this as far as I can see. If this is a must-have, I'll have to forego the single fund idea and mix-and-match domestic and international, as you have done.

Several funds do but they can't specifically say that they don't put out dividends(instead they say "they reserve the right not to put out dividends") or similar. Just look at their past dividend payouts. If it's several 0s in a row I think it's a safe bet that they're reinvesting it.

I personally haven't gone with direct VT for a handful of reasons that have nothing to do with the currency conversion:

a) taxes are going to be a pain in the ass. Going to get taxed in us and japan then have to get a refund. US will still tax dividends in a nisa and you won't get refunded for that

True for the NISA, this is a big additional cost that has to be considered in addition to the currency fees. But outside of a NISA, I understand that the US withholding tax is reduced from 20% to 10%, and the other 10% is Japanese tax. So inside a tokutei account this is handled automatically and doesn't result in extra taxes or extra work?

I also wonder how the Rakuten fund, which just wraps VT, handles this.

Another small benefit of using a fund rather than a foreign ETF, is that you can put every last yen into a NISA, without having a couple of thousand left due to the broker enforcing a currency exchange buffer.

I'm not sure how the taxes are handled, but if a separate tax return needs to be filed that sounds like a royal pita. If the tokutei kouza handles it all(as in you just get charged 10/10) that's great. I was under the impression you'd get charged 10/20 and have to file a return for the other 10.

I found this article (in Japanese) that said a couple of interesting things:

1. The Rakuten fund does reinvest internally. I'd misunderstood that.
2. In the long rung, going direct with VT is cheaper, but the rakuten fund's higher fees doesn't slow it down as much as expected because of the tax benefits of the dividend reinvestment.

http://siegeljiro.com/rakutenvt-vt

The article models an annual 400,000 yen investment I wonder what the results would be for different amounts (or different assumptions for the market performance).

This is great. I feel like he's been a bit harsh on the fund though(tagging on nearly .2% for turnover costs would be a lot for an index fund assuming people buy & holding). Similar(world minus japan so not quite the same) have total costs(including hidden turnover) of about .27%. Also if we go to a 50/50 split of dividends/growth then 3% dividends would be more accurate and it would lean in favor of the fund(reinvesting pre-tax). I think in that situation that the fund would come out ahead

[jcc]

I also forgot: that article works off a theoretical scenario that both VT and rakuten-vt are inside of a nisa account. This is of course impossible(vt can't go in).

In a scenario where both are in a tokutei, the dividends would be fully taxed on distribution(something that wasn't happening in the example) so they would not compound as efficiently. Of course if they are left in the fund, that tax won't be levied(until a looot later when you cash out).

I got curious and made a spreadsheet to simulate this: https://docs.google.com/spreadsheets/d/ ... sp=sharing

You can make a copy and plug your own numbers in. I set tax on dividends to .2 for vt and .1 for vt-rakuten. I thought vt-rakuten should be 0 but the blog post seems to claim that you get 10% taxed internally inside the fund. I suspect this may be the US tax which is taxing before the dividends are emitted. It may also be a consequence of using VT(which is a us traded etf) and could be lessened by using a japanese fund/etf.

Try some numbers and let me know if I made any mistakes in the calculation. With the assumed costs of .4 for rakuten-vt(which I feel is a steep assumption) pure vt comes ahead and moves further ahead as time goes by

It's also interesting to play with the allocation of growth vs dividends. Shifting to growth sees very significant gains if there's any tax at all on dividends