All-World ETFs for NISA

27 Dec 2022 | #japan | #money

My go-to investment is the Vanguard Total World Stock ETF (VT) that includes stocks in close to all companies of the world, so as long as the world economy does well, it goes up. Being a US-based security the dividends are subject to a 10% tax withholding in the US (regardless of me not having to file US taxes). This is not an issue for regular investments, as Japan levies a 20% tax on dividends and due to the tax treaty with the US I can deduct the already paid 10% and only pay the other 10% in Japan (I’m using Interactive Brokers, so I’m doing this myself when filing my taxes).

However I also started doing NISA recently, which is tax-exempt, so I don’t need to pay taxes in Japan on neither the capital gains nor the dividends. But this does not affect the 10% dividend tax levied in the US. So I set out to find a comparable investment that is domiciled outside the US.

Some international sites recommend Irish domiciled world ETFs as an alternative, like the Vanguard FTSE All-World UCITS ETF (VWRA), however this has an expense ratio of 0.22% which is quite high compared to VT’s 0.07%.

Another alternative I looked at was Japanese domiciled securities, since there I could potentially also save the conversion fee. Japanese Wikipedia has a list and retirewiki.jp also has the cheaper options, and an eye-opening explanation on the triple taxation problem. This helped me narrow down my search to two options: eMaxis Slim All Country (ｅＭＡＸＩＳ Ｓｌｉｍ 全世界株式（オール・カントリー）) (fee: 0.1144％) and MAXIS All Country ETF (ＭＡＸＩＳ全世界株式（オール・カントリー）上場投信) (fee: 0.0858％). Both of these are relatively young (eMAXIS one started in 2017 and the MAXIS one started in 2020, compared to VT’s 2008 start), but both of these are offered by MUFG, one of the major banks of Japan, which makes it pretty reliable in my opinion.

The difference between the two is described by Rakuten: eMAXIS Slim is a mutual fund (投資信託) and MAXIS is an ETF (上場投信). They are similar (as they are investing in the same underlying assets), but there are a few differences:

• the mutual fund is traded once a day, while the ETF is traded during the stock market opening hours, like regular stocks. You can place limit orders for ETFs (e.g. buy 10 units if the price goes below 10,000 yen)
• the holding fees are a bit higher for the mutual fund: 0.0858％ vs 0.1144％, but the difference is minimal: 0.0286% which is 343 yen for 1,200,000 yen (purchase fee is zero for both - at Rakuten and SBI)
• you can invest any amount to the mutual fund, while from the ETF one needs to buy full units.

For me the last one matters: in NISA one can invest up to 1,200,000 yen a year, so I want to invest 100,000 yen each month. However with ETFs it’s never exactly 100,000 yen and at the end of the year I need to check and purchase more to get close to the limit, so I decided to go with the mutual fund eMaxis Slim. Moreover SBI now has a campaign, 投信マイレージサービス where they give 0.042% of the investment value as points each year, effectively lowering the holding fee to 0.0724% bringing it inline with Vanguard’s VT.