Fund selectors are debating whether Janus Henderson’s first product in Europe truly reflects a high-conviction strategy, despite what the ETF’s name suggests.
The Janus Henderson Tabula Japan High Conviction Equity UCITS ETF (JCPN) listed on Deutsche Borse on Monday and complement the asset manager’s two Japan focused mutual funds in Europe which house a combined $5.8bn assets under management (AUM).
JCPN captures 25 stocks, with the its top allocations currently awarded to Toyota (8.5%), Hitachi (7.2%) and Sony (6.3%).
The top ten holdings are largely reminiscent of the UK-domiciled $100m Janus Henderson Japan Opportunities Fund, with the top three weightings also identical to JCPN.
So far, the high-conviction active ETF market remains a niche within the still-emerging active ETF space, with few issuers offering such concentrated strategies in Europe.
Cathie Wood’s ARK Invest ETFs are perhaps the most prolific concentrated ETF strategies in Europe, with the three-strong active thematic range holding between 36 and 42 holdings.
To date, the range has struggled to gain traction in Europe and prompts the question of why Janus Henderson might have decided to launch this particular strategy as their debut active ETF offering. Is it an area primed for disruption, or will investors turn a blind eye?
Why Japan high conviction as first launch?
Rather than importing one of its US ETF for its European debut, Janus Henderson’s new strategy largely resembles its UK-domiciled mutual fund, the Janus Henderson Japan Opportunities Fund.
Peter Sleep, investment director at Callanish Capital said JCPN is a “close copy” of the existing mutual fund, with rationale to launch an ETF version underpinned by the fund’s strong ten-year track record and by it being relatively small.
As such, Sleep noted the size of the fund would not have “ruffled too many feathers amongst traditional fund managers eager to maintain their high fees.”
Wayne Nutland, fund manager at Skerritts, added Janus Henderson has the “opportunity to be one of the early leaders in the active concentrated UCITS ETF space”, alongside being a “welcome and perhaps brave development” given the lack of competing strategies on the market.
Nutland noted there is room for strategies like this within a portfolio, as the firm incorporates "targeted, active satellite positions" in its investment approach.
‘High conviction’ questioned
If JCPN is the ETF answer to the Janus Henderson Japan Opportunities Fund, Sleep questioned the mutual fund’s - and by extension the ETF’s - high-conviction credentials.
Sleep said, “Despite having around 30 holdings, it does not seem particularly high-conviction or high-risk.
“With a beta of 1.02, it appears to be risk-controlled. The top 10 stocks in the fund closely resemble the Tokyo Stock Price index, with key names like Toyota, Hitachi, and Sony, though the weightings differ slightly,” he explained.
Sleep added the fund's valuation metrics - like P/E and price-to-book - are in line with Tokyo Stock Price index.
Creation and redemption timing
Sleep explained most investors choose to create or redeem at market close, and this is likely to be the case for Japan as well, with investors creating on the close in Japan overnight.
If an investor wanted to create during London hours, an AP could quote a price, but it would factor in hedging costs and the risk taken on.
He suggested much of the AP’s market risk could be offset by shorting TOPIX futures or ETFs, with company-specific risk hedged out in the lending market.
“The AP will likely borrow the necessary Japanese shares rather than US shares, but it does not really matter, idiosyncratic risks are just numbers to an AP, and the closest comparable stock will do.”
