After $1.1 Billion Carnage, Japan ETF Heads for Worst-Ever Month

(Bloomberg) -- As Japan’s economic picture looks increasingly dire, one popular exchange-traded fund focused on the country is taking a hit.

Investors have pulled about $1.1 billion from the JPMorgan BetaBuilders Japan ETF so far in February, according to data compiled by Bloomberg. The $3.2 billion fund, known as BBJP, is now on pace for its worst month of withdrawals since it began trading in June 2018. The outflows are reflective of the malaise that’s driven the yen to its biggest two-day drop since 2017.

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Japan lurched toward a possible economic contraction after taking another battering from a sales-tax hike in the last quarter that left it at a low ebb as the coronavirus outbreak hit activity at the start of 2020. A flood of local cash leaving the country for better returns is seen as a key culprit behind the currency weakness.

“With Japan potentially heading into a recession and facing tourism concerns tied to coronavirus, sentiment is stronger toward other developed international markets such as Europe,” said Todd Rosenbluth, CFRA Research’s New York-based director of ETF research.

While expectations for European growth have also worsened, investors seeking places in the world to invest beyond the U.S. may be looking at a region that seems a little more attractive than Japan. The $4.5 billion JPMorgan BetaBuilders Europe ETF, or BBEU, is poised for its best month of inflows since April.

While it’s hard to draw a direct connection between flows like these, JPMorgan is the biggest holder of both products. Just Wednesday, the Japan ETF lost almost $238 million, following an outflow of about $270 on Tuesday. The only investor with a stake that large is the New York-based bank.

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“Given that the vast majority of the assets in these BetaBuilders are JPMorgan’s own money, what I call BYOA, or bring your own assets, this is likely JPMorgan making a call that they want to rotate into Europe out of Japan,” said Bloomberg Intelligence’s Eric Balchunas.

JPMorgan’s press office declined to comment on whether it was behind the flows.

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