Mitsubishi UFJ Trust and Banking Corporation (MUTB) is planning to expand its smart beta indices and related products line-up targeting local and global investors, in response to the memorandum of understanding (MOU) signed with Stoxx last week, with structured products highlighted as one of the potential products to be developed, according to Yoshiyuki Masuda (pictured), manager of the index strategy fund management division at MUTB.
What are the reasons for developing smart beta indices and products in partnership with Stoxx?
Smart beta indices has been growing globally given that they are able to cater to the diversified needs of the investors. Capitalisation-weighted indices have been the investment cornerstone for years, and the demand for adding value to the index, or the evolution of representing risk premium in the form of index, has aroused interest among the investors.
What has been the trend of smart beta indices in Japan?
Smart beta indices only started to attract attention in Japan in April last year accompanied by the restructuring of government pension investment fund (GPIF). Apart from employing JPX-Nikkei 400 index as the benchmark of the fund, the introduction of smart beta for active management has also contributed to the trend, which we see influencing domestic institutional investors.
We see smart beta indices with the focus of reducing risk, such as minimum variance or minimum volatility indices and those based on high dividends or enterprise values such as fundamental index, are rapidly gaining popularity among the investors.
Who will be your target clients and what kind of products do you plan to offer?
We would like to offer indices and relevant products to investors worldwide without focusing on specific regions or countries. However, we do see better penetration of smart beta products in Europe, especially Northern Europe. Also, in the US, not only with institutions, but also individual investors have also a good understanding of smart beta through their experienced with exchange-traded funds (ETFs). These investors will also be our target clientele. On the product level, there is not much choice available with Japan or Asian indices, and we consider these products will cater to the needs of investors.
For smart beta indices, the leading providers in the market, such as MSCI, have been focusing on risk premia indices which will benefit directly from the performance of active management. We are planning to add these indices to our line up catering to domestic and foreign clients.
We see less products based on growth indices in Japan. We consider growth indices including factors such as return on equity (ROE) will gradually gain momentum, given the policies of Abenomics, which will contribute to the (re)growth of Japanese companies and the country itself, and also attract foreign investors.
Do you have any plans for developing any structured products based on smart beta indices?
We do not have a concrete plan so far, but we will continue to create different series of indices, on which structured products will have a good chance to develop.
MUTB is a subsidiary of Mitsubishi UFJ (MUFJ) Financial Group and had assets of ¥31.4tr (US$261.9bn) as of March 31, 2014, and is one of Japan’s largest trust banks. MUFJ is the leading provider of structured products in Japan with a 25% market share and more than ¥640bn (US$5.3bn) of product sales in 2014. The Japanese bank has more than 300 live products in Japan’s retail market either as distributor (279 products) or counterparty provider (18 products).
MUTB has been issuing ETF-linked structured notes, for which Nomura Securities is the only distributor. It has issued six corresponding products in 2014, and four in 2015. Its parent company, MUFJ Financial Group is most active in Japanese retail structured products market, and holds around a 25% market share.
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