How to know what an Index fund actually contains?

[Kanto]

When you are looking at Japanese Index Funds how do you find out what exactly the fund is holding?

Does an Index fund actually track a specific market or does it just hold shares in a mutual fund that tracks the market themselves? I am wondering, as the latter scenario would obviously eat into potential profit.

For example the eMAXIS Slimバランス（8資産均等型）fund.
https://www.rakuten-sec.co.jp/web/fund/ ... 90C000EWV6

Does the fund hold these stocks and bonds themselves?

Does a fund like ｅＭＡＸＩＳ Ｓｌｉｍ 米国株式（Ｓ＆Ｐ５００）actual track the market or does it just buy shares in another fund that does?

Sorry if these are newbie questions.

Background: My wife and I just set up iDeco and are looking at NISA next. Trying to decide between Regular NiSA and Tsumitate. Mid 30s one kid, not American.

[TokyoWart]

It depends. When the Vanguard S&P 500 index fund started it was unable to attract enough capital to exactly duplicate the index holdings so it only owned most of the stocks in the index (it’s not too hard to track an index without holding all shares because for a cap-weighted index most of the index performance comes from a relatively smaller number of the largest cap firms in the index). I just checked the eMAXIS Slim S&P 500 fund and it looks like it holds all 475 of the stocks and 30 REITS in the index.

An ETN will generally not hold the index itself but is built to duplicate the performance of the index using options or futures and is really just a contract with the issuing bank that promises to perform like the index.

In any case you can find lists of what’s in an ETF on the issuers website.

[Kanto]

That is extremely helpful! Thank you.

I must be looking in the wrong place. Could you possible link me the page or the phrase you used when looking it up?

As an aside I am curious what the general opinion here is of the eMAXIS Slimバランス（8資産均等型）fund.
https://www.rakuten-sec.co.jp/web/fund/ ... 90C000EWV6

It seem like a good choice for a つみたてNISA?

[TokyoWart]

Start at page 42 of this document:

https://emaxis.jp/pdf/seimokuromi/25326 ... 200125.pdf

[jcc]

You can look in the prospectus for some information on how the funds are structured. A lot of the time they will be structured as parent and child funds. The structuring of the funds is generally done in a way to minimize unnecessary trades.

As an aside I am curious what the general opinion here is of the eMAXIS Slimバランス（8資産均等型）fund.

I'm not a fan.

It's an unweighted balancing. But weighting by market share is a better idea.

If has a MASSIVE 37.5% of bonds and 1/3 of those are developing nations. The stock portfolio is also even split jp/developing/developed, while in reality the vast majority of the market cap is in developed nations.

It's a gimmick.

There's nothing wrong with having all 8 of those sectors(though personally I'd skip on both jp and emerging bonds), but they definitely should not be in equal proportions. Risk adjusted returns would be higher on a market cap balanced mix.

You should consider how much you want in stocks and bonds and then either use market cap balanced world funds(like http://www.morningstar.co.jp/FundData_s ... 2018103105 ) or balance your own with a mix of domestic + developed + emerging.

[fools_gold]

I'm not a fan.

It's an unweighted balancing. But weighting by market share is a better idea.

If has a MASSIVE 37.5% of bonds and 1/3 of those are developing nations. The stock portfolio is also even split jp/developing/developed, while in reality the vast majority of the market cap is in developed nations.

It's a gimmick.

There's nothing wrong with having all 8 of those sectors(though personally I'd skip on both jp and emerging bonds), but they definitely should not be in equal proportions. Risk adjusted returns would be higher on a market cap balanced mix.

You should consider how much you want in stocks and bonds and then either use market cap balanced world funds(like http://www.morningstar.co.jp/FundData_s ... 2018103105 ) or balance your own with a mix of domestic + developed + emerging.

Personally, I like the emaxis slim 8-way. I ran 3 different portfolios through myindex.jp which allows you to backtest them for 20 years.
1. 80% developed market stocks, 10% Japanese stocks and 10% emerging. This roughly corresponds to international stocks by market cap.
2. 20% developed market bonds, 64% developed market stocks, 8% Japanese and 8% emerging. This corresponds to 80% international stocks with 20% developed market bonds.
3. The 8-way split used in the emaxis slim 8-way fund.

The emaxis fund was the best performer by quite a margin. 5.9% annual returns vs 4.8% for the other two portfolios. Volatility was a lot less at 12.2% vs 18.5% for all stocks and 15.9% for the 80/20 portfolio. Balanced funds are also a better fit for tsumitate NISA because they automatically rebalance. If you mix and match funds you can't easily rebalance between them.

[Kanto]

I'm not a fan.

It's an unweighted balancing. But weighting by market share is a better idea.

If has a MASSIVE 37.5% of bonds and 1/3 of those are developing nations. The stock portfolio is also even split jp/developing/developed, while in reality the vast majority of the market cap is in developed nations.

It's a gimmick.

There's nothing wrong with having all 8 of those sectors(though personally I'd skip on both jp and emerging bonds), but they definitely should not be in equal proportions. Risk adjusted returns would be higher on a market cap balanced mix.

You should consider how much you want in stocks and bonds and then either use market cap balanced world funds(like http://www.morningstar.co.jp/FundData_s ... 2018103105 ) or balance your own with a mix of domestic + developed + emerging.

Personally, I like the emaxis slim 8-way. I ran 3 different portfolios through myindex.jp which allows you to backtest them for 20 years.
1. 80% developed market stocks, 10% Japanese stocks and 10% emerging. This roughly corresponds to international stocks by market cap.
2. 20% developed market bonds, 64% developed market stocks, 8% Japanese and 8% emerging. This corresponds to 80% international stocks with 20% developed market bonds.
3. The 8-way split used in the emaxis slim 8-way fund.

The emaxis fund was the best performer by quite a margin. 5.9% annual returns vs 4.8% for the other two portfolios. Volatility was a lot less at 12.2% vs 18.5% for all stocks and 15.9% for the 80/20 portfolio. Balanced funds are also a better fit for tsumitate NISA because they automatically rebalance. If you mix and match funds you can't easily rebalance between them.

I was considering just going all-in on this for the つみたてNISA instead of setting up my own bond/stock split for this reason. It seems to have performed quite well. It could also be a good candidate for the Junior Nisa.

Have any of you had better returns selecting your own bond/stock split with つみたて？

This is also the 5th most popular つみたて fund if that matters.

Cheers,

[jcc]

I'm not a fan.

It's an unweighted balancing. But weighting by market share is a better idea.

If has a MASSIVE 37.5% of bonds and 1/3 of those are developing nations. The stock portfolio is also even split jp/developing/developed, while in reality the vast majority of the market cap is in developed nations.

It's a gimmick.

There's nothing wrong with having all 8 of those sectors(though personally I'd skip on both jp and emerging bonds), but they definitely should not be in equal proportions. Risk adjusted returns would be higher on a market cap balanced mix.

You should consider how much you want in stocks and bonds and then either use market cap balanced world funds(like http://www.morningstar.co.jp/FundData_s ... 2018103105 ) or balance your own with a mix of domestic + developed + emerging.

Personally, I like the emaxis slim 8-way. I ran 3 different portfolios through myindex.jp which allows you to backtest them for 20 years.
1. 80% developed market stocks, 10% Japanese stocks and 10% emerging. This roughly corresponds to international stocks by market cap.
2. 20% developed market bonds, 64% developed market stocks, 8% Japanese and 8% emerging. This corresponds to 80% international stocks with 20% developed market bonds.
3. The 8-way split used in the emaxis slim 8-way fund.

The emaxis fund was the best performer by quite a margin. 5.9% annual returns vs 4.8% for the other two portfolios. Volatility was a lot less at 12.2% vs 18.5% for all stocks and 15.9% for the 80/20 portfolio. Balanced funds are also a better fit for tsumitate NISA because they automatically rebalance. If you mix and match funds you can't easily rebalance between them.

I would bring it to your attention that we just hit a bump in the road where stocks plummeted and the value of 37.5% bond allocation would be massive. You are buying stocks during the build up to the tech bubble and selling them right after the corona dump. Of course a stock heavy portfolio loses in this particular 20 year span.

Shift that 20 year window a year back from now, or even an year forward and that portfolio would probably fall behind.

Backdating is a simple mistake frequently made. It needs to be done against multiple ranges as well as multiple time periods to have ANY kind of confidence. "Past performance is no guarantee of future results." This is not a filler statement. Places are required to write this because it is true.

You can pick a particular span of years and then make an AMAZING portfolio for that span, and find that in the next span of years it performs very poorly.

If you are going to do backdating, do it against multiple spans and with multiple different start and end dates. Starting 20 years ago until now is a terrible range to use(entirely coincidentally)

Just to further highlight how flawed this thinking is, the highest performing commodity in the last 20 years is GOLD. Yes, that's right. It's value is 561% of what it was 20 years ago. But if you go back 40 years instead, it actually has less value.

And if you pick out the 100 year returns of gold it's 700%... annualized that's a 2% return. That's well below inflation

Take care

[adamu]

[fools_gold]

I would bring it to your attention that we just hit a bump in the road where stocks plummeted and the value of 37.5% bond allocation would be massive. You are buying stocks during the build up to the tech bubble and selling them right after the corona dump. Of course a stock heavy portfolio loses in this particular 20 year span.

Shift that 20 year window a year back from now, or even an year forward and that portfolio would probably fall behind.

The recent slump is far outweighed by 20 years of cumulative gains. Go back one, five, ten years...the 8-way split still outperforms.

Backdating is a simple mistake frequently made. It needs to be done against multiple ranges as well as multiple time periods to have ANY kind of confidence. "Past performance is no guarantee of future results." This is not a filler statement. Places are required to write this because it is true.

Past returns is the entire premise behind investing. Why would any of us invest in stocks if we didn't believe past gains would continue?

You can pick a particular span of years and then make an AMAZING portfolio for that span, and find that in the next span of years it performs very poorly.

Just to clarify...I didn't set out to show that this particular fund outperformed stocks. I just wanted to demonstrate that it gave decent returns over a long period of time and was less volatile. I was actually quite surprised by the result. In addition, I think it's a great fit for NISA in that you can easily diversify across asset classes without the hassle of rebalancing. Personally, I put half my money in this and half in a world stock fund.

If you are going to do backdating, do it against multiple spans and with multiple different start and end dates. Starting 20 years ago until now is a terrible range to use(entirely coincidentally)

I'm not sure why the past 20 years is so terrible. It covers the dot.com boom and the Great Recession. The recent slump is just a blip after 20 years of gains. Maybe you could suggest a better range?
Anyway, I'll leave any further backtesting to greater minds than myself. What research I've done so far hasn't convinced me that 100% international stocks is the best way to go for Japanese investors. You're adding a lot of currency volatility without necessarily getting the reward.

Just to further highlight how flawed this thinking is, the highest performing commodity in the last 20 years is GOLD. Yes, that's right. It's value is 561% of what it was 20 years ago. But if you go back 40 years instead, it actually has less value.

And if you pick out the 100 year returns of gold it's 700%... annualized that's a 2% return. That's well below inflation

I think we can both agree that it's never a good idea to put all your eggs in one basket.

Take care

You too!