A sound investment process and strong management team underpin iShares MSCI Japan Small-Cap ETF's Morningstar Medalist Rating of Silver. The portfolio maintains a sizable cost advantage over competitors, priced within the second-cheapest fee quintile among peers.  

 The strategy's sensible investment philosophy merits an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in momentum exposure and quality exposure compared with category peers. Momentum is the premise that stocks that have recently outperformed will continue to do so. With low momentum exposure, the portfolio is holding stocks that managers believe to be undervalued. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The strategy’s management team earns an Above Average People Pillar rating. The strategy's parent organization earns the firm an Above Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category index on a risk-adjusted basis over the long term. iShares MSCI Japan Small-Cap ETF earns an Above Average Process Pillar rating. The main driver of the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The process is limited by the fund's unimpressive long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category index, which suggests that the process has struggled over that period.

The investment strategy as stated in the fund's prospectus is:  The investment seeks to track the MSCI Japan Small Cap Index.  The index measures the performance of equity securities of Japanese small-capitalization companies and represents approximately 14% of the free float-adjusted market capitalization of the Japan equity universe. It generally will invest at least 80% of assets in the component securities of its index and in investments that have economic characteristics that are substantially identical to the component securities of its index and may invest up to 20% of its assets in certain futures, options and swap contracts, cash and cash equivalents, and as well as in securities not included in the index. 

 The portfolio is overweight in real estate and industrials relative to the category average by 4.7 and 3.2 percentage points, respectively. The sectors with low exposure compared to category peers are financial services and technology, underweight the average by 6.0 and 4.6 percentage points of assets, respectively. The portfolio is composed of 874 holdings and its assets are more dispersed than peers in the category. In particular, 5.7% of the strategy's assets are concentrated in the top 10 fund holdings, as opposed to the category’s 21.3% average. And in closing, in terms of portfolio turnover, on a year-over-year basis, 8% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Above Average

Process

iShares MSCI Japan Small-Cap ETF benefits considerably from its equity team, earning it an Above Average People Pillar rating. There are three managers listed on the fund: Paul Whitehead, Jennifer Hsui, Greg Savage. The team is well equipped, with an average of 18 years of portfolio management experience. Together, they manage a total of 257 strategies, with a Silver asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive alpha relative to the category median in aggregate.  

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

People

BlackRock offers compelling options across asset classes and vehicles. It earns an Above Average rating for Parent. 
The firm’s approximately USD 8 trillion in assets under management, as of Sept. 30, 2022, gives it unparalleled scale and influence. It is a market-leading index fund provider globally, and its iShares exchange-traded fund franchise offers a low-cost lineup of core funds that investors can use to build a well-diversified portfolio for dirt cheap. The firm can be more adventurous in its ETF launches than some peers, so not everything it launches is appropriate for the masses. As a result, it is likely to have more ETF closures than peers that stick to the basic building blocks.  
The firm’s active fixed-income and multi-asset efforts also stand out as some of the best in the industry. Those benefit from BlackRock’s commitment to building a first-class risk management system via its Aladdin analytics software. The software is also available for sale to other firms and has proved to be a popular option for competitors, a testament to its usefulness. 
More recently, the firm has shifted its focus to ESG offerings and incorporating ESG across its investment lineup, leading to a political backlash in the United States.
BlackRock isn’t the best at everything it tries to do, but retail investors, financial advisors, and large institutions could all build robust portfolios using BlackRock’s products.

Parent

iShares MSCI Japan Small-Cap ETF

SCJ tracks a market-cap-weighted index of small-cap Japanese stocks.

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Inflation slowed down in March but underlying inflationary pressures are still alive. The BoJ's pause at its next week's meeting is widely expected but markets will pay more attention to the BoJ's quarterly outlook report.

Cooler Inflation Ahead Of The Bank of Japan Meeting

Japan's equity benchmark, the Nikkei 225 Index, has been on a tear in 2024, eclipsing its previous high set back in 1989. As of early April, the index is hovering near 40,000. Solid economic growth, a revamp in the country's tax-free stock investment program and corporate governance reform have helped propel Japanese equities to record highs.

Can Japan's Stock Market Continue Its Record-Setting Run?

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The Bank of Japan is set to normalise monetary policy when certain conditions are met, namely inflation, positive real cash earnings, and a recovery in domestic demand growth. We expect the window for normalisation to open from July for about a year before inflation begins to fall below 2%.

The Bank of Japan's New Path Ahead

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The Bank of Japan's historic move to end the country's negative interest rate policy after nearly two decades triggered a jolt upward to new all-time highs for gold against the yen. The BoJ announced it will now hold short-term rates at a still-accommodative 0% to 0.1% and is getting rid of its yield curve control program and ETF purchases.

The End Of Japan's Negative Interest Rates: What It Means For Gold

Japan's private sector picked up growth momentum into the end of the first quarter, according to flash PMI data.

Japan Flash PMI Signals Accelerating Growth Momentum And Rising Inflation In March 2024

Kazuo Ueda becomes Governor of the Bank of Japan, continuing the loose monetary policies implemented by his predecessor. The BOJ raises short rates from -0.1% to 0.1%, becoming the last central bank to exit a Negative Interest Rate Policy.

End Of An Era - Bank of Japan Reverses Negative Interest Rate Policy

The Bank of Japan raised interest rates for the first time since 2007 and has eliminated the yield curve control framework. According to the central bank, the virtuous cycle between wages and prices was assessed to have come into sight, bringing the 2% inflation target within a sustainable and stable possibility by the end of fiscal year 2025.

Flash Insights: Bank of Japan - A 'Watchful' Adjustment

The Bank of Japan has now ended decades of unconventional and aggressive monetary easing. Strong wage negotiation results played a crucial role in today's move.

Bank of Japan Pivot Proves Underwhelming For Markets

Japan's private sector activity broadly stagnated in February according to flash PMI data, attributed to a combination of slowing services activity growth and an acceleration in manufacturing output contraction. A sharper decline in goods new orders, underpinned by sluggish demand conditions, also largely offset improved demand for services.

Flash PMI Signal Cooling Inflation And Stagnating Private Sector Activity In Japan

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While the China macro story of ongoing transition is a headwind to the rest of Asia, there is more to the region's economic health than this.

Asia-Pacific Is Not Just China

Japan's economic growth is projected to decelerate to 0.9% in 2024 and 0.8% in 2025. Government policies have helped the recovery of Japanese stocks and will continue to be a positive factor going forward.

The Rally In Japanese Stocks

Japan's Private Sector Returns To Growth At Start Of 2024, While Price Pressures Ease

The Bank of Japan stood pat on monetary policy today as widely expected. But the market is now paying attention to a more positive tone on the wage and inflation outlook, as well as an upgrade to the FY2024 inflation outlook which lays the groundwork for policy normalisation.

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In its final policy meeting of the year, the Bank of Japan (BOJ) decided to maintain its ultra-loose monetary policy due to the presence of "extremely high uncertainties" affecting the country's economy.

Should You Tap Japan ETFs on BoJ's Continued Easy Money Policy?

Japan's private sector growth ground to a halt in November according to the latest flash PMI data, which is based on about 85%-90% of total PMI survey responses each month. This was mainly attributed to a sharper fall in manufacturing output as service activity expanded at a slightly faster pace in the penultimate month of the year.

Japan Flash PMI Eases To 50.0 To Signal Stalling Private Sector Activity In November

The Japanese stock market is having itself a hot minute. The Nikkei 225 index, a benchmark for Japanese equities, is up nearly 30 percent so far this year.

Japan, Still The Outlier After All These Years

Things were looking tough for the BoJ as recently as this summer, when the country's core CPI bolted north of 4%, far beyond the 2% inflation target that major central banks view as ideal. The Bank of Japan is being reactive to an inflation threat that may very well be in the rearview mirror.

Declining PPIs Perpetuate Japan's TINA Trade

The debate over the future of Japan continues. Because of its small footprint, we often forget the oversized role Japan plays in the global economy.

Japan's Future Remains An Issue Of Debate

October's flash PMI data revealed that Japan's private sector economy concluded the eight-month growth streak that commenced in January 2023. This was attributed primarily to a sharper fall in manufacturing production, though services activity growth also slowed to the weakest in the year-to-date.

Japan's Flash PMI Points To Stalling Private Sector Economy At Start Of Fourth Quarter

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The region is likely to see faster disinflation, but prospects for growth in coming years are dimming. Strong consumer spending has supported growth in Asia's three largest economies this year, but there are already signs that the region's recovery may be running out of steam.

Asia Continues To Fuel Global Growth, But Economic Momentum Is Slowing

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The IMF, the World Bank, and the United Nations all rank China and Japan as the second and third largest economies on the planet. More of what is occurring in the markets should reflect what is happening in China and Japan which are strongly linked economically.

China Could Derail Japan's Fragile Recovery

It is disappointing that labour cash earnings were weaker than expected in Japan, but consumption held up relatively well. Meanwhile, due to the recent spike in market rates and high inflation, the Bank of Japan is expected to change its YCC policy and forward guidance at its October meeting.

Mixed Signals For Earnings And Spending In Japan, But The BoJ Is Likely To Move On

Japanese stocks have outperformed global equities by a wide margin this year. Is this a false dawn or can inflation continue to breathe life into the market?

Japan Equities: Inflation May Be Just What The Doctor Ordered

Japan's private sector economy continued to grow in September, extending the sequence of expansion that commenced at the start of 2023. Slower service sector growth, attributed in part to a renewed decline in new business from abroad, and a quicker fall in manufacturing output underpinned the latest slowdown.

Japan's Growth Momentum And Inflation Pressures Ease In September

Japan's Nikkei 225 eclipsed 33,000 for the first time in 33 years, and the significant rally has attracted major investor interest. Global portfolio managers are increasingly bullish on Japan, and they are allocating more cash to this rising market.

The Sun Shines On Japanese Stocks, Anticipating Key Events To Finish The First Half

News for iShares MSCI Japan Small-Cap ETF ETF (SCJ)