PHOTO
Japan's dividend funds drew their largest inflows in 18 years in 2024, driven by corporate reforms to enhance shareholder returns and the boost to business profits from the weaker yen.
Their resilience to last year's market volatility and their blend of growth and stable returns made them as a strong investment option in the face of rising U.S. yields and potential tariff actions from Trump, analysts said.
According to LSEG Lipper data, Japanese dividend funds received an inflow of $4.18 billion last year, the highest since 2006.
With Japan's emergence from years of deflation, companies are not only reporting higher profits but are increasingly returning a substantial portion of these earnings to shareholders through dividends and buybacks.
Analysts said such stable returns have enhanced the appeal of dividend funds over other value-oriented or growth-focused investment strategies, while also providing investors an opportunity to participate in Japan's strongest stock market rally in decades. And for foreigner investors, Japan has become a diversification opportunity, away from U.S. markets' concentrated rallies in tech and AI stocks.
"Growth sectors, particularly AI and semiconductors, are undoubtedly exciting, fueled by innovation and government support. But they carry higher volatility, and are more sensitive to macroeconomic shifts," said Max Stamakun, portfolio manager at Israilov Financial.
"Japanese dividend payers, however, are well-positioned for sustained performance, particularly given the current emphasis on shareholder returns."
Last year, foreign investors ploughed about 1.2 trillion yen ($7.72 billion) into Japanese stocks as the Nikkei index surged by 19%, outperforming the MSCI Asia Pacific index and MSCI World.
At the fore of inflows in 2024 into dividend funds were the MUAM Nikkei Average High Dividend Yield Stock Fund, Nomura NF Nikkei225 High Dividend Yield Stock 50 Index ETF, and Nomura Japan Good Dividend Equity Fund, which attracted $780.99 million, $695.57 million, and $524.79 million in net investments, respectively.
Israilov Financial's Stamakun also pointed to Japan's expanded NISA as driving bigger retail participation in funds. The Nippon Individual Savings Account (NISA) is a tax-free Japanese government initiative encouraging individuals to invest their cash holdings in the stock market.
"If inflation is sticky and if Japanese interest rates keep rising, you can see the relative attractiveness of higher-dividend Japanese stocks that offer a sustainable dividend, and dividend growth that exceeds the rate of inflation," said Jared Hoff, portfolio manager at Federated Hermes.
($1 = 155.4100 yen)
(Reporting By Patturaja Murugaboopathy Editing by Vidya Ranganathan and Kim Coghill)