Insights from Investment Pros on Orcan and Another Key Trust to Consider

“Is Orcan Sufficient on Its Own?”

According to the Wealth Advisor’s ‘Investment Trust Fund Flows Report’ (May ’24), inflows into domestic equity investment trusts (excluding ETFs) reached ¥1.5379 trillion in April ’24, surpassing ¥1 trillion for the fourth consecutive month.

Among the top 25 funds in net inflows, 17 are international equity types, with the top performer being “eMAXIS Slim Global Equities (All Country)”—commonly known as Orcan—with inflows of ¥181.3 billion. Orcan has consistently led in net inflows across all funds for six consecutive months.

In this article, we explore whether investing solely in the popular Orcan is sufficient or if other considerations are necessary.

What exactly is Orcan as an investment trust?

Orcan, officially known as ‘eMAXIS Slim Global Equities (All Country),’ is a global equity index fund designed to mirror the performance of stock markets worldwide, including Japan.

It aims to track the MSCI All Country World Index (ACWI), which comprises large-cap stocks from 23 developed countries, 24 emerging markets, and approximately 3,000 companies globally. The fund covers approximately 85% of the world’s equity market capitalization.”

Orcan began operations on October 31, 2018, and as of the time of writing this article (May 23, 2024), it has been in operation for five and a half years. Its net assets total ¥3.4484 trillion [as of May 23, 2024], and it has shown a five-year return (annualized) of 19.66% [as of May 17, 2024], indicating steady accumulation of funds and consistent profitability from investments.

The key to its popularity lies in its cost structure, with a management fee of only 0.05775% per annum, which is among the lowest available. The total expense ratio that investors effectively bear (from April 26, 2022, to April 25, 2023) has been maintained at a low level of 0.15%. It’s worth noting that the management fee was reduced to 0.05775% starting from September 8, 2023.

Furthermore, Orcan also incorporates a mechanism known as beneficiary rebate-type trust fee, where the effective trust fee rate borne by investors decreases gradually as the total net assets of the fund increase.

By the way, the MSCI ACWI index, which Orcan tracks, allocates its assets across the following regions:

Since it’s referred to as global equities, some may have assumed it evenly distributes investments across the world’s equities. However, as depicted in the graph, approximately 60% is attributed to the United States alone. Many may be surprised by the heavy concentration in U.S. stocks, so it’s important to remember this fact.

The reason for the significant allocation to U.S. stocks is due to the United States being the center of the global economy and having experienced long-term growth. While there’s no guarantee that the U.S. will continue to grow indefinitely, Orcan includes approximately 40% in other developed and emerging markets besides the U.S., aiming to diversify and potentially enhance investment effectiveness rather than concentrating solely on the U.S.

However, it is indeed a fact that the proportion of U.S. stocks is significant.

Among our readers, there may be individuals who are considering risk hedging.

If you want to reduce risk, it’s conventional wisdom to not only invest in stocks but also diversify into assets with different price movements such as bonds and REITs. However, for this discussion, we’ll focus on investing in “stocks” and explore strategies accordingly.

• Considering currency and regional diversification, you might think about “Japanese equity index funds” and “excluding U.S. equity index funds.”

As mentioned earlier, Orcan has a small percentage allocated to Japanese stocks and is heavily weighted towards U.S. stocks. Additionally, foreign stocks are purchased in their respective currencies, which increases exposure to exchange rate fluctuations.

Therefore, if you’re aiming for asset growth while considering currency and regional diversification, investing in a Japanese equity index fund would be a viable option.

• If you’re inclined to take on more aggressive risks, consider investing in a “U.S. equity index fund.”

On the other hand, some individuals may wish to take on more risk than Orcan offers. In such cases, alongside Orcan, investing in a U.S. equity index fund could be a strategy to consider.

• If you’re aiming for capital gains and dividends, consider investing in a “high dividend yield equity fund.”

If you want to increase resilience against market downturns or aim for capital gains and dividend income, investing in a “high dividend yield equity fund” alongside Orcan could be a strategy worth considering.

By investing in a high dividend yield equity fund through the new NISA (Nippon Individual Savings Account), you can receive dividend income tax-free for your lifetime.

However, if it aligns with your risk tolerance, investing solely in Orcan should pose no issues. On the other hand, considering Orcan’s characteristics, risk-return profile, and whether you want to hedge risks or take on more risk, combining it with other investments can also be intriguing.

In the premium version of “FRIDAYサブスク,” we provide detailed introductions, including specific names, of another investment trust that complements Orcan based on different goals and types you may be aiming for.

In the paid version, “Another Mutual Fund” is introduced [with real names]. If you are interested in the details, click here!