SJPA

Overview

iShares MSCI Japan SRI UCITS ETF USD (Acc) (SJPA) tracks the MSCI Japan SRI Select Reduced Fossil Fuels index and holds its constituents directly, a physical replication managed by iShares. Dividends are reinvested inside the fund rather than paid out, so SJPA suits investors building a position over time. The fund is domiciled in IE, which determines the withholding tax treatment applied to its dividends. Annual charges come to 0.20% of assets, and the fund holds 1.2B under management. Over five years the fund returned 10.3% a year on average, against 18.1% over three years. It is not eligible for the French PEA, but can be held in a securities account, a UK ISA or a German Depot. Its risk level is rated medium. Launched on 2017-11-30, the fund is denominated in USD and has 9 years of track record. It is a UCITS fund, so it follows the European framework on diversification, liquidity and asset segregation. Because SJPA accumulates, nothing is taxed while the shares are held: the charge falls on disposal, against your capital gains allowance in a general account, and not at all inside an ISA or a SIPP. Domicile in IE sets the withholding the fund itself suffers on the dividends it receives, a cost absent from the stated fee but present in the return.

Ongoing charges of 0.20% place this fund 114th of 225 comparable funds, whose median is 0.19%. On £10,000 that costs about 20 a year and 200 over ten years at a constant amount, deducted daily and never visible on a statement: it shows up in the gap between the fund's return and its index's. At this level, neither low enough to be an argument nor high enough to be an obstacle, the decision rests elsewhere: on the index tracked, on the distribution policy, and on what your broker charges to buy.

Replication is physical: the fund actually holds the constituents of MSCI Japan SRI Select Reduced Fossil Fuels, which makes its contents verifiable line by line in the issuer's report. Two points deserve attention. Securities lending first, practised by most physical funds to reduce costs: it earns a few hundredths of a point and creates an exposure to the borrower, covered by collateral, with the annual report stating the proportion lent. Rebalancing second: every change in the index's composition forces the fund to buy and sell, and those internal costs are not in the 0.20% headline. That is why two funds at the same price do not track their index with the same fidelity.

The domicile, Ireland, is not an administrative detail: it determines the withholding tax the fund suffers on the dividends it receives, and that loss appears in no fee table. On US equities, the Ireland-US treaty cuts withholding from thirty to fifteen per cent, which on a world index is mechanically worth several tenths of a point a year and explains Irish dominance of this segment. For the holder, the UCITS framework also brings the key information document in their own language, diversification rules, and separation of the fund's assets from the issuer's.

Income is accumulated: dividends from the holdings are reinvested inside the fund rather than paid out. In a taxable account that defers taxation to the moment of sale instead of triggering it annually, leaving the whole return at work, and that is the main advantage of this share class. Two qualifications go with it. A holder who needs income has to sell units to obtain it, which is one more decision to take and sometimes at a bad moment. And the deferral is not universal: some countries tax a notional annual return whatever the distribution policy, in which case the accumulating class changes nothing.

With 1.2 billion in assets and 9 years of history, this fund has the size and the record that make closure unlikely and the spread narrow. Three checks remain, once a year, none of which depends on the market. The ongoing charge, which an issuer revises without notice and whose gap to a competitor can invert. The tracking difference, the only figure that says whether replication stays faithful. And the methodology of MSCI Japan SRI Select Reduced Fossil Fuels, which can change its selection or weighting rules without the fund's name moving, in which case what you hold has changed with nothing to announce it.

MSCI Japan SRI Select Reduced Fossil Fuels applies a non-financial screen, and the first thing to establish is which one: a simple exclusion of a few activities leaves a portfolio very close to the starting index, while selecting the best-rated in each sector removes a large part of it. Both often carry the same kind of name. Two practical consequences: the deviation from the broad index becomes deliberate and can last for years, and the rating comes from a provider whose method changes, so the composition shifts without any public rule having moved. The exclusion list is in the prospectus, and that is the only document that binds.

Over one year the fund shows -8.9% against 10.3% annualised over five years: the recent year lags the long average. Before drawing a conclusion, two possible causes have to be separated, because they have different consequences: a fall in the index tracked, which affects every fund replicating it, or a deterioration specific to the fund, which shows in the tracking difference rather than in the return.

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