HJPN: FUM Warning

If an ETF has a small amount of funds under management or FUM (meaning, the amount of money invested in the ETF), it risks being closed by the fund manager.

Here at Best ETFs Australia, we consider any ETF with less than $100 million invested to be a higher than normal risk of being closed. However, there are many variables to consider:

• Is it a lower-cost ETF (under 0.5% in yearly management fees)? If so, it'll need more FUM to be profitable.
• Is the ETF issuer a major provider of ETFs? If they are not 'one of the big guys', the ETF department could be closed if it fails to become profitable.

It's important to remember that if an ETF closes, the ETF investor will typically receive a notification from the ETF issuer and can elect to sell the ETF prior to its closing, or opt to receive his or her money back from the ETF after it closes.

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International shares sector

The Best ETFs international shares sector includes ETFs, managed funds and index funds which cover international equities/share markets. The most popular international shares markets for ETFs include:

• The USA
• Europe & the UK
• Emerging Markets (EM)
• Asia (including China)

With around 98% of shares listed on markets outside of Australia, we think it's vital for Australian investors to consider looking abroad for exposure to some of the world's best companies, including those from the technology, communications and health care sectors.

Performance Characteristics

Over the ultra-long-term, international shares have proven to be among the best-performing asset classes. However, it is also one of the riskier investments you can make, as measured by standard deviation or volatility.

Hedged or Unhedged?

When you're investing in international ETFs, it's worth noting whether or not you're prepared to take on the risk that the currency moves in your favour or against you. Typically, you'll have two options:

1. Hedged ETFs will attempt to 'lock-in' the exchange rate at the time you make your investment
2. Unhedged ETFs do not provide protection against movements in the currency

Which one is better? That's up to you.

Just keep an eye on the costs of the hedged versus unhedged versions of the strategy/ETF and consider your own risk profile.

Note: you should always consult a licensed and trusted financial adviser before doing anything. This information is factual information and should not be considered financial advice.

Taxes

Finally, take note of where your international ETF is 'domiciled' by reading its PDS or the ETF Issuer's website because this -- sometimes hidden -- feature could meaningfully affect your tax.

• Australian domiciled ETFs - these are registered and regulated in Australia and are 'Australian residents' for tax purposes. These are just like an ordinary share or ETF you would buy on the ASX and the tax paperwork is filled out by the fund manager at the fund level.
• Foreign domiciled, 'cross-listed' or CDI ETFs - these ETFs are registered offshore and provide a beneficial interest to investors via a 'CDI' listing on the ASX. Sometimes these ETFs may require additional paperwork for taxes, such as filling in a US W8-BEN form to reduce withholding tax or expose ETF investors to foreign regulation or U.S. Estate Taxes.

Consult with your tax and/or financial adviser before investing.

What exactly does International shares invest in?

This ETF invests in large Japanese companies that are globally competitive, like Nintendo, Softbank and Sony. Trying to replicate this exposure to Japanese equities yourself would be next to impossible, so HJPN could be a solution for investors looking for a targeted exposure to this market.

Sector risks

According to academic study, when you invest globally, you may be lowering some of your risks. For example, you won't have all of your eggs in your 'Australia basket'.

However, there are extra risks added when you invest overseas. Some of these risks include:

• Sovereign/regulatory risks - Governments and regulators throughout the world can change their policies on investing, taxes and even the rights of people and investors. Australia has a very stable and robust financial, legal, political and societal system -- many countries don't.
• FX/currency risks - A big reason many investors put their money overseas is to get exposure to another country's currency. For example, if you invest 1 AUD into US Dollars at a currency exchange rate of 1.00, you will get 1 USD in return. If the USD gets stronger (meaning the Aussie dollar exchange rate falls), your 1 USD is now worth more! However, it can go the opposite direction. For example, if the AUD-USD goes to 1.10, your 1 USD (bought at a lower exchange rate) is now worth less in AUD terms than before. This risk is the reason why some ETFs are currency 'hedged' -- to avoid the impact of currency fluctuations.
• Counterparty risk  & holding structure - Some ETF issuers use complicated holding structures to get you exposure to the underlying investment overseas. In Australia, ASX-listed shares and ETFs use the same system to 'settle' transactions and 'hold' your ETFs in your name, it's called the CHESS system. However, if the ETF invests in overseas shares it's likely those shares will be held using another system or holding structure governed by other rules. Rest assured there are some safeguards in place. But you should always do your research, read the ETF's Product Disclosure Statement (PDS) or consult a licensed financial adviser.
• Timezone - Often, global sharemarkets will be open when you're asleep. Conversely, Australian sharemarkets (where you buy into the ETFs) operate when the rest of the world is asleep. That makes tracking the latest ETF prices a little more difficult for you and for ETF issuers. This could lead to changes in the 'unit price' or the "net asset value" (NTA) of the ETF overnight.

You should always consult a licensed and trusted financial adviser before doing anything. This information is general information and should not be considered personal financial advice.

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What you need to know about BetaShares

BetaShares is one of Australia's largest ETF issuers, by number of ETFs issued on the ASX. At the end of 2018, Betashares had $6.1 billion of money invested in its ETFs.

BetaShares was founded in Sydney by a group of finance professionals who have a venture capital (VC) business called Apex Capital Partners. BetaShares was an 'in house' investment for Apex but grew quickly as ETFs took off.

Betashares is part-owned by Mirae Asset Global Investment Group, a specialist ETF business which manages nearly $130 billion.

$6b+ invested in BetaShares ETFs

BetaShares launched its first ETF in 2010 but has grown its ETF count rapidly to have around 50 ETFs in the market today.

BetaShares has issued index fund ETFs, rules-based ETFs and actively managed funds in an ETF wrapper. To launch its active funds, BetaShares teamed up with Legg Mason and AMP.

Potential allocation for HJPN

This ETF might be used as part of a 'tactical' or 'satellite' allocation in a diversified long-term portfolio because of its unique strategy, costs, risk-reward profile and the expectation of long-term returns.

What is The Core-Satellite Approach?

A core-satellite approach puts investments into two 'buckets' depending on the expected risk and returns.

Bucket 1: Core Investments

The 'core' is the larger part of an investment portfolio and could be reserved for more conservative investments. For example, this might include diversified, low-cost and easy to understand funds, bonds, shares or ETFs.

If you're new to investing, the core is a good place to start.

Core ETFs might include:

• Australian shares (index strategies)
• Australian bonds and global bonds
• Cash

Bucket 2: Satellite/Tactical Investments

The 'satellite' or tactical bucket is the smaller part of a portfolio (e.g. 0% to 30% of your entire portfolio). In this section, investors might decide to take more risk, invest in unique or unproven strategies, buy fast-growing individual shares, etc.

Tactical strategies could be higher risk, higher cost and more complicated strategies that are used in the hope of outperforming the averages (e.g. ASX 200, S&P 500, etc.).

Tactical ETFs might include:

• Australian shares (rules-based strategies)
• Global shares (rules-based strategies)
• Commodity ETFs
• Currency ETFs
• Cash ETFs
• Hedge funds

Typically, what is HJPN used for?

The HJPN ETF could be used by investors looking for a tactical exposure to the Japanese equity market, while reducing currency risk through hedging strategies.

How do I invest in the Japan ETF – Currency Hedged ETF ETF?

The easiest way to buy an ETF is through your online share brokerage account. Just search for the ticker code and buy it. The following podcast explains how to buy shares and ETFs for the first time.

Meaning, you can follow the exact same process for ETFs as you do for shares -- both can be purchased in one account.

Australian Investing 101

Don't have a brokerage account for ETFs?

Read our tutorial on understanding how share brokerage accounts work.

Is HJPN a good ETF?

We believe that knowing whether or not to invest in an ETF requires a lot of research, even for an ETF like this one. ETFs are long-term investments, so it's important to do the right amount of research into the ETF before you invest, and consider how it fits with your risk profile, strategy and the other investments in your portfolio.

Where you can go to find more research on this ETF:

Reports like this one on the Best ETFs Australia website were built to help you understand ETFs and to provide free access to news and research across all Australian ETFs, index funds and selected managed funds.

This report is the free version of our ETF reserach and it contains general information and should not be considered as a recommendation or personal financial advice. If you want to receive personal financial advice and have someone tailor the ETF research to you, you should speak to a financial adviser.

If you don't want to pay a financial adviser, here's what you can do:

• Before doing anything, you should always read the ETF's Product Disclosure Statement (PDS), which should be available on the ETF provider/issuer's website. The PDS explains some of the risks, the fees and other important information.

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Disclaimer: Any information contained in this report is limited to general financial advice/information only. The information should not be relied upon because it has not taken into account your specific needs, goals or objectives. Please, consult with a licenced and trusted financial adviser before acting on the information. Past performance is no guarantee of future performance. Nothing in this article should be considered a guarantee. Investing is risky and can result in capital loss. By reading this website, you acknowledge this warning, having read our Financial Services Guide (FSG) and agree to our terms & conditions available here. This article is authorised by Owen Raszkiewicz of The Rask Group Pty Ltd.