RetireJapan

I have recently opened an account with Rakuten securities, and I'm trying to understand whether it is better to invest in Japanese funds, or in foreign ETFs. Or, more in general, how to compare the two types of product.
I'm not an economist so I might be making mistakes in the following calculations, so if you find anything wrong please let me know!

I tried to compare two equivalent product:

• ｅＭＡＸＩＳ Ｓｌｉｍ 米国株式（Ｓ＆Ｐ５００）
• Vanguard S&P 500 ETF (VOO)

Looking at the past yearly returns, is seems that:

• Slim: 16.44%
• Vanguard: 21.83%

Vanguard is USD denominated, so the USD/JPY rate plays a big factor. In the past year, the USD lost 2.17% value against the JPY.
Therefore, the actual returns for a JPY investment, are:

• Slim: 16.44%
• Vanguard: 19.19%

The Slim fund and the Vanguard have the following annual fees:

• Slim: 0.0968％
• Vanguard: 0.0300％

The Vanguard one is more convenient, but both fees are low enough that they don't justify the difference in the yearly returns.
Basically both funds are almost free.

On the matter of dividends:

• Slim does not pay dividends.
• Vanguard does.

This makes Vanguard even more attractive, because reinvesting those dividends would boost the return rate even more.
I assumed that the reason Slim does not pay dividends is because they automatically reinvest them in the fund. I don't know if they do, but certainly it doesn't show.

All of these things considered, it seems there is no reason to go for the Japanese fund, especially now that Rakuten (and I think also SBI) have reduced to 0 the fee to buy US stocks. Even considering the cost to convert currency it still seems to be better to go with Vanguard.
US stocks are allowed in a regular Nisa account (not in the tsumitate if I remember well), so if you have a regular Nisa you won't have any troubles with it.

Finally, and this is just a personal opinion, I feel like, at the same level of risk/return, investing in the "simplest" product is a preferable/safer choice. Why go with a fund managed by a foreign country (in this case, Japan), when you can directly buy an ETF based in the same country as the stocks it holds?

Of course, as previously said, I might be overlooking something critical. Also, I only compared two products, maybe the results would be different if I were to select a different pair.

What do you people think?

DRAKMAN wrote: ↑Sat Oct 03, 2020 3:37 am
Looking at the past yearly returns, is seems that:

• Slim: 16.44%
• Vanguard: 21.83%

How exactly are you getting the yearly returns? Are you calculating them yourself or taking them from a website?

Here are my calculations for total returns including dividends. Not quite a year but good enough to compare.

On Oct 3rd, 2019, VOO was 266.67USD. The exchange rate that day was 106.75, giving us a yen price of 28,467yen.
On Oct 1st, 2020, VOO was 309.60USD. An exchange rate of 105.53 gives us 32,672yen
The return was therefore 14.77%.

Dividends over the period were 2.0% of the cost price of 266.67USD. Minus 10% withholding tax gives us 1.8%.
Total return (if held in a NISA) of 16.57%.

For the eMaxisSlim S&P500 we need to compare the prices for the day after. This is because of the time difference between the US and Japan.
So, on Oct 4th 2019, eMaxisSlim S&P500 was 10,520.
On Oct 2nd, 2020, it was 12,249.
Return over this period was 16.44%.

VOO works out slightly better, but you can’t accumulate dividends in your NISA once you’ve maxed out your allowance, you have to pay a spread when converting your money to and from dollars, and finally you can only buy it in units over 30,00 yen.

edit: I got the VOO data from Google, the exchange rate from xe.com, and the prices for eMaxisSlim from Rakuten Securities

How exactly are you getting the yearly returns? Are you calculating them yourself or taking them from a website?

I got them online, but indeed I'm not so convinced about the validity, it seems better to calculate them how you did.
However, I've got a few doubts with your process.

Dividends over the period were 2.0% of the cost price of 266.67USD. Minus 10% withholding tax gives us 1.8%.

How did you came up with this number? Dividends depend on the current stock value, so I think each dividend should be calculated individually.
The best way would be to just check the amount payed on each dividend date, it's easy to find the history online.
What about the 10％ withholding? I'm not sure I follow that part.

The second problem I have is that I think your method does not account for the ETF fee, is that right?

DRAKMAN wrote: ↑Sat Oct 03, 2020 10:04 am How did you came up with this number? Dividends depend on the current stock value, so I think each dividend should be calculated individually.
The best way would be to just check the amount payed on each dividend date, it's easy to find the history online.
What about the 10％ withholding? I'm not sure I follow that part.

That*s what I did. Sorry for not explaining it.
I got the dividends from Vanguard's site.https://investor.vanguard.com/etf/profi ... utions/voo
I added up the dividends received during the time period (5.438 USD) and divided by the cost basis (266.67 USD), giving 2%. I could have converted each back to yen but I didn't think it was worth the trouble.

The US government taxes dividends on US stocks held by foreign investors. In our case, as Japanese residents, it is 10%. The dividend you actually receive is the dividend minus the 10% tax. If you hold the ETFs in a taxable account you'll be taxed by the Japanese government too.

The second problem I have is that I think your method does not account for the ETF fee, is that right?

Do you mean the expense ratio? You don't need to account for it because the returns are quoted after the expense ratio. I think the reason why VOO performed slightly better over the time period is because it has a lower expense ratio. Despite this, I think Japanese mutual funds like eMaxisSlim are better because the dividends are accumulated within the fund.

You don't need to account for it because the returns are quoted after the expense ratio.

The US government taxes dividends on US stocks held by foreign investors.

Thank you, you pretty much solved all my doubts. It's not an easy world to navigate in at first

One more question: are there any funds that hedge against currency risk?
It seems like an option I would like to have when investing in a JPY funds that fully invests in USD denominated products.

DRAKMAN wrote: ↑Sun Oct 04, 2020 2:11 am One more question: are there any funds that hedge against currency risk?
It seems like an option I would like to have when investing in a JPY funds that fully invests in USD denominated products.

Hedged stock funds aren't very popular, but Tawara do a hedged developed markets stock fund. There are others out there too. You need to look for funds labelled 「為替ヘッジあり」