By Junko Fujita
TOKYO (Reuters) -A new breed of exchange-traded funds in Japan aims to ride a push for corporate governance and value by buying into companies that are ripe for reform or targets of activist investors.
Three new active ETFs launched by Simplex Asset Management, due to start trading on July 18, will target the highly fragmented regional bank sector, real estate investment trusts (REITs) that largely trade below their book value, and asset-rich broadcasters.
Japan’s regional bank sector is primed for a shakeup, with nearly 90 institutions struggling to stay alive as the population ages and shrinks.
The new funds come on the heels of Simplex’s 2023 launch of ETFs aimed at companies trading below their book value, a key metric used by the Tokyo Stock Exchange to press firms into improving their capital and returns.
“We created ETFs for industries that need a change,” said Simplex CEO Hiromasa Mizushima.
“Let’s think about where activist funds target. They come in where the company’s shares are cheap and they’re holding a lot of assets.”
Shareholders in Japan have grown increasingly vocal, submitting a record 137 proposals across 52 companies for voting at their annual meetings this year, according to Mitsubishi UFJ Trust and Banking.
Activist investors rarely succeed outright in their campaigns, but their involvement can “trigger a change in corporate management that cherishes Japanese tradition,” said Mizushima.
Local media recently reported that Chiba Bank and Chiba Kogyo Bank, both based just outside Tokyo, are set to join the wave of consolidation.
Of Japan’s nearly 60 publicly traded REITs, Nippon Building Fund is the only one that trades above book value, which runs at odds with rising property prices across the country.
The last of the new active ETFs targets media and entertainment companies, many of which have massive property assets on their books.
Mizushima said the asset manager will be engaged in conversations with companies it invests in.
The group’s Simplex PBR Improvement over 1x ETF, one of the value funds started in 2023, has risen 5.12% this year, outperforming the Topix’s 1.73% gain.
The three new active ETFs are the Sector Restructuring Select ETF TV, the Sector Restructuring Select ETF Regional Banks, and the Sector Restructuring Select ETF Event-Driven REITs.
(Reporting by Junko Fujita; Editing by Rocky Swift and Saad Sayeed)
