Japan's Service Sector Gathers Steam: 3 Fund Picks

Japan was one of the most preferred places for investment in recent times. The Investment Association (IA) Japan fund sector has returned 76.7% on average over the past five years. Furthermore, the IA Japanese Smaller Companies sector turned up as one of the best performing, with an average return of more than 100% over the past years.

Japan has showcased resilience in times of global economic slowdown. Its first-quarter GDP nudged up, putting to rest speculation about an impending slowdown in the world’s third-largest economy. Further, unemployment rate is near a four-decade low. Such encouraging conditions call for investing in mutual funds with significant exposure to companies domiciled in Japan.

Japan’s Service PMI Hits a 3 Month High

Per the latest report, the Jibun Bank Japan Services Purchasing Managers’ Index (PMI), which measures the country’s service sector activity, increased to 51.9 in June from 51.7 in May. This marked its highest pace of growth in the past three months. A reading above 50 depicts that the index is expanding and has increased for the 33rd month on the trot.

Japan’s service sector has benefited immensely from domestic demands and has remained resilient to economic pressure from the country’s weakening export.

Further, the composite PMI, which includes both manufacturing and services sectors, increased to 50.8 in June from 50.7 in May.

Analysts believe that if such solid growth in the service sector is sustained in the months to come, the space could go a long way in boosting the country’s overall economic growth. As a matter of fact, economists believe that the country’s resilience to global economic downturns of 2019 implies that its GDP growth is likely to remain strong for the remaining part of this year.

3 Best Fund Choices

We have, thus, selected three Japan mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain from such factors. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

ProFunds UltraJapan Fund Investor UJPIX seeks daily investment results that correspond to twice the daily performance of Nikkei 225 Stock Exchange. The non-diversified fund invests in financial instruments that ProFund Advisors feel will produce daily returns consistent with the fund’s objective for investment.

This Sector - Japan - Equity product has a history of positive total returns for over 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

UJPIX has a Zacks Mutual Fund Rank#1 and an annual expense ratio of 1.66%, which is below the category average of 2.05%. The fund has three and five-year returns of 22.4% and 14%, respectively.

T. Rowe Price Japan Fund PRJPX seeks capital appreciation over the long run by investing the majority of its assets in securities of companies based in Japan. PRJPX invests in various Japanese companies and industries, irrespective of their size.

This Sector - Japan - Equity product has a history of positive total returns for over 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

PRJPX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.95%, which is below the category average of 1.27%. The fund has three and five-year returns of 12.5% and 10.6%, respectively.

Matthews Japan Investor Fund MJFOX aims to gain capital by investing the majority of its net assets in preferred and common stocks of companies located in Japan.

This Sector - Japan - Equity product has a history of positive total returns for over 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

MJFOX has a Zacks Mutual Fund Rank#2 and an annual expense ratio of 0.91%, which is below the category average of 1.27%. The fund has three and five-year returns of 7.2% and 9%, respectively.

Want key mutual fund info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>