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＊＊＊ Table of Contents ＊＊＊

1. Market Review

2. This Week's Spotlight!

3. This Week's Featured Articles

【Three-Year Return of U.S. Stock Active Management: Top Tech】

4. Investment Tips

Online Salon: From Researcher Reports

5. Activity Information

6. Q&A Corner

2000 Million Yen Target Pace Maker

Source: Financial Services Agency; Created by ExeTrust Co., Ltd. based on asset management simulations

※These figures are only simulations and do not guarantee future results. Fees and taxes are not considered.

How to Read: Assumed Yield and Target Year

3–4% for over 30 years: Wrap funds and balanced funds fit this

5–7% would take about 25 years: for stock funds outside the U.S. perhaps this

8–10% would be about 20 years: a modest view of the S&P 500’s rise would look like this

S&P 500 Performance Track Record (Dividend Reinvested 1970-2021)

Achieve 20,000,000 yen early through proper risk taking

The message from Kawada is incredibly simple. To reach 20,000,000 yen, have as much of your spare funds work as efficiently as possible. For that, it is important that participants correctly understand the meaning of risk and reward. Before reading the weekly newsletter, glance at this table to confirm the proper investment posture.

Now, start the countdown to achieving 20,000,000 yen right now!

Online Salon “Asset Formation School Where Dreams Come True”

This is an online salon where everyone learns together and inspires each other to succeed in asset formation. It offers seminars for members to experience the魅力 of U.S. stock investing and content that cannot be fully conveyed by our popular newsletter “Building U.S. Stocks through Media.”

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1. Market Review (Nov. 19 – Dec. 3)

＜Major Indices＞

・Dow Jones -2.9%

・S&P 500 -3.4%

・Nasdaq Composite -6.1%

＝ Quick Version ＝

Before the Thanksgiving holiday, rising interest rates weighed on growth stocks, keeping them in a high-range range, but after the holiday, concerns over the Omicron variant led to a sharp drop, with a risk-off stance growing among investors, especially for growth stocks.

＝ A Little More Detail ＝

The stock market started to stall after the earning season ended. Growth stocks were pressured by rising rates amid strong economic data, but as cyclicals were bought, the market hovered near highs.

However, after Thanksgiving, fears of renewed spread of the Omicron variant led to a global stock market plunge. While the exact impact on the economy from renewed infections remained uncertain, investors adopted a stronger risk-off posture.

Additionally, minutes from the November FOMC and Chair Powell's congressional testimony fostered a broader perception that the Fed would tighten policy more aggressively than before, which also contributed to declines in growth stocks.

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2. This Week’s Bold Insight

We deliver information that we want you to know.

Two Changes

In the past two weeks, the landscape surrounding the stock market has changed greatly. One is the emergence of the Omicron variant of the novel coronavirus. The other is the Fed’s policy stance. Although there are still many uncertainties about Omicron, current information suggests its impact on the economy will not be large. The market and society are not expected to take long to adapt.

Fed Policy Stance

What seems to influence the market more is the Fed’s policy stance. In Chairman Powell’s congressional testimony on November 30, a more hawkish posture was indicated than in the November FOMC minutes released before Thanksgiving. It was the first time such testimony had noticeably affected the market in a while, and the conclusion was: “At present, the economy is very solid and inflation pressures are high, so at the next FOMC meeting we will discuss accelerating tapering.”

They also touched on the novel coronavirus, stating, “the labor market and supply chains have faced external supply-side issues,” and asserted, “the Fed cannot address the supply side, so it will respond by tightening on the demand side.” This signals a focus on the mandate of “inflation control.”

Near-Term Outlook

So, how long will this testimony influence last? A major milestone will be the FOMC meeting on December 14-15. The market will incorporate the stance shown there, and if the uncertainty clears, it could be a positive factor. Until then, issues like the U.S. debt ceiling (the political fight over expanding the U.S. debt limit) and Omicron-related news are likely to keep investors risk-averse. The Consumer Price Index due this weekend also warrants attention. Also, the “quadruple witching” on the 17th, when futures and options expire, could serve as a benchmark; if you are bullish, a dip-buying approach before then might be effective.

Viewed from November’s end, the market looks quite bleak, but the S&P 500 is only down 3.6% from its all-time high. In September’s decline, the drop was about 5%, so it isn’t enormous yet. It’s easy to become pessimistic because growth stocks like Tesla have fallen sharply and the Russell 2000 small-cap index has fallen more than 10% from its highs, but that may be a correction unique to those names. From a slightly broader perspective, this is just one rhythm of stock prices. Because the economy is strong enough to allow rate hikes, equity markets can still rise.

S&P 500 Index Chart: Last 1 Year

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3. This Week’s Picked Articles

Here we select information useful for asset formation from what I have gathered, ranking them and adding a very personal commentary.

[1] Nikkei: US Stock Active Returns over 3 Years, Top Tech-Related11/25

• The Nikkei Thursday evening edition always features a “Mutual Fund Rankings” column. On November 25, it highlighted top performers among active mutual funds investing in U.S. stocks.

• Top performers stood out for technology-related companies.

• 1st place: “US Technology Innovators Fund” managed by Sumitomo Mitsui DS Asset Management, with a 3-year return of 165.6%.

• 2nd place: “netWIN GS Technology Equity Fund B-Share (no currency hedging)” invests in stocks of companies benefiting from technological progress.

• 5th to 8th places: growth-stock funds with high allocations to IT and healthcare.

[Kawada Comment]

The article lists the top 10 funds, but here we show the top five in a table. The message is simple: even the top-performing active funds find it hard to beat the Nasdaq-100 index. If you believe growth stocks will continue to lead, it may be better to buy Nasdaq-100 funds or ETFs rather than these funds. If you don’t want to bet on either value or growth, an all-weather S&P 500 index fund or ETF may be suitable.

Next, we compare active funds with Nasdaq-100.

【Performance】

1st: Sumitomo Mitsui DS Asset Management’s “US Technology Innovators Fund” shows excellent performance. It mainly invests in U.S. information technology companies with high growth potential. Practically managed by T. Rowe Price Associates, Inc.Also, the video slides note uses a comparison benchmark of the S&P 500 and MSCI All Country World Index (ACWI), but these are not stated benchmarks. The holdings appear to be a strong cluster of tech stocks.

Related video: US Technology Innovators Fund

Performance 2nd: Goldman Sachs Asset Management’s “netWIN GS Technology Equity Fund B-Share (no currency hedge)” which invests in companies benefiting from technology advancement. As commented later, its holdings resemble Nasdaq-100, so its performance is almost identical to Nasdaq-100 and slightly lagging.

Other funds after 2nd have performance similar to Nasdaq-100 (in JPY terms) but underperform in any period.

【Assets Under Management】

The GS fund 2nd has over 800 billion JPY in AUM, while others are smaller than 1000 billion. The 1st fund’s 66.2 billion is small, and funds 3–5 are even smaller.

Only the 4th fund explicitly states its benchmark. Looking at the holdings, it seems likely that it targets the Nasdaq Composite or Nasdaq-100.

Except for the 1st fund, all have performance similar to Nasdaq-100 (in JPY terms) but underperform in every period.

1st Fund: US Technology Innovators Fund: Assets Under Management and Net Asset Value

Since inception, performance has been generally positive, with assets under management rising to over 30 billion JPY around 2018.

From Q4 2018 when the NAV stagnated due to stock declines to the onset of the Covid crisis, the balance halved. After the crisis, DX (digital transformation) stock surges caused NAV to spike, increasing AUM.

This year, performance has been favorable, but AUM has slightly decreased. It may be used for short-term trading. If you think it’s a good fund, you might hold rather than sell, but that’s not always the case. Consequently, AUM is currently in the 60 billion JPY range. No matter how good the manager is, if investors do not nurture this fund, AUM will not grow.

【Management Fee】

All funds charge around 2%. Nasdaq-100 in JPY-denominated ETFs on the Tokyo Exchange are either 1545 or 2631, but their management fees are 0.22%, which is much lower than these funds. There is no need to pay high management fees for active funds.

【Holdings】

We compared the top holdings of these two top-performing funds with the Nasdaq-100 index's top holdings.

In active fund management, some funds claim active management while charging higher fees, yet hold holdings similar to the benchmark. Such funds are called Closet Index Funds (Note 1). Also, the lower the active share (i.e., the closer the holdings to the benchmark), the more performance must come from non-benchmark active stocks, making it harder for active funds to beat the benchmark.

From this perspective, the 1st fund appears to have a high active share. On the other hand, the 2nd fund’s holdings are quite similar to Nasdaq-100, so its active share relative to Nasdaq-100 may be low.

(Note 1)Closet Index Fund

Closet Index Fund refers to a fund that is actively managed but its holdings mimic the benchmark so closely that its performance tracks the benchmark, effectively an apparent index fund.

(Note 2)Active Share

Active Share measures how much a fund’s holdings differ from its benchmark index. It ranges from 0% to 100%. 0% means identical to the benchmark; 100% means completely different. Higher values indicate more distinctive active management.

1st: Overview and allocation of the top holdings of the US Technology Innovators Fund

Atlassian (TEAM) Chart (5 years)

Roblox (RBLX) Chart (from March 2021)

HubSpot (HUBS) Chart

1st: US Technology Innovators Fund: Overview of Top Holdings and Allocation

【Kawada Comment】

There is little reason to buy actively managed investment trusts for asset formation. If you simply buy S&P 500 and Nasdaq-100 index funds or ETFs without being swayed by brokerage or media noise, you will already have the equity position needed for asset formation. This is a message I feel must be repeated.

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4. Investment Hints

This column covers not only investment methods and stock introductions but also noteworthy metrics, remarks, and social or political developments.

Online Salon: Researcher’s Report

In my own online salon “Dreams Come True Asset Formation School,” members regularly share their insights on asset formation.

Mr. N is a late-career engineer about to retire from a major company and has extensive experience in research institutes, manufacturing, and international business. He has lived through Japan’s economic booms and declines, witnessing Japan’s evolving presence firsthand.

He has supported his family and prepared for retirement by diligently researching and practicing investment and asset formation from a young age.

This time, for two weeks, Mr. N generously shared 30 years of practical experience. Here are the essential points from the presentation.

“Case Studies of Financial Products Utilization ~Life Audit~”

【Kawada Comment】

He impressed the audience with engineer-like logical thinking and meticulous PowerPoint materials. He freely used online portfolio analysis tools and selected investments and securities that matched his strategy.

I am aware of online analytical tools, but I can’t perform stock screening or cross-comparison analyses to that extent.

His logical thinking, solid approach to asset formation, and the ability to translate them into concrete investment targets and actions impressed all participants.

Moreover, considering the energy and effort required to manage a portfolio, the idea of “buying QQQ!” felt almost inspirational to everyone. It felt like a lifeline.

I left feeling that I had contributed value by organizing the salon for everyone to benefit from the original purpose of the salon.

I would love to have Mr. N occasionally present his investment process and results at the salon so we can all learn together.

Thank you very much, Mr. N.

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New Series“Everything About Asset Formation Using U.S. Stocks”

Introduction

We are starting a serial series covering the essential basics of asset formation. The overall structure is planned as follows:

1. What era are we living in? Part 1

2. Independent Japanese people and indispensable asset formation for independence – Part 2

3. Is the stock market only in the United States? Part 3

4. Differences in stock market cultures between Japan and the U.S.

5. Key characteristics of the U.S. market to know

6. What is the S&P 500

7. Why is the U.S. strong

8. Recommended investment strategies – Core and Satellite Investing –

9. Core investment strategies

10. Satellite investment strategies

11. What should I buy

12. Information sources and investing

Episode 3: Is the stock market in the U.S. only? Part 4

■ Books that Confirm the Long-Term Rise of U.S. Stocks

Continuing from last time, here are books that shaped my current view on U.S. stocks.

A common thread is that “America’s history and culture differ from any other country or region.” For Westerners, America is the New World and a Protestant-based artificial nation. With these conditions, a highly developed stock market could emerge and evolve. I strongly believe so.

The author is either educated in Britain and America or is a sociologist well-versed in Christianity, Western civilization, and world religions.

Three books previously introduced were:

1) The End of History and the Last Man – Francis Fukuyama, translated by Noboru Watanabe, Kadokawa

2) Naoki Komuro – The Constitutional Theory for the Japanese

3) The Smart Power: The New Power that Will Rule the 21st Century – Joseph S. Nye, translated by Yoichi Yamaoka and Kyoko Fujishima

This edition covers the following three books

4) Clash of Civilizations (Japanese edition) Hardcover – 1998/6/26, Samuel P. Huntington (author), Shigeo Suzuki (translator)

◆ About the Content ◆

The “Confucian-Islamic connection” challenging Europe continues to raise serious nuclear proliferation concerns. Japan, caught in the middle… A renowned global political strategist author makes sharp predictions about 21st-century geopolitics.

【Amazon Reviews】

Part One: A World Comprising Several Civilizations

Resistance

Since Japan’s first contact with the West in 1542 until the mid-19th century, Japan largely resisted modernization. Limited modernization such as firearms was allowed, but Western culture uptake was severely restricted, and Christianity was harshly treated. By the mid-17th century Westerners were полностью expelled.

The resistance ended when Comdr. Perry forced open Japan in 1854. China, for centuries, attempted to prevent modernization and Westernization. A Christian envoy entered China in 1601, but by 1722 they were effectively expelled. Unlike Japan, China’s resistance policy was anchored in the self-image of a Chinese empire and a belief in cultural superiority over neighboring peoples.

China’s isolation ended in a manner similar to Japan’s, as European military power—exploited during the Opium Wars of 1839–1842—began to erode non-Western societies’ capacity to maintain exclusionary strategies. By the 19th century, Western powers dominated globally, and most countries eventually gained independence.

【Kawada Comment】

The original title is “CIVILIZATION: The West and the Rest.” A literal translation would be “Civilization: The West Against the Rest,” but the actual argument is more of a Western-centric perspective spanning Britain and America and is a hallmark of the author’s analytic approach.

Other quotes in this chapter frequently reference Paul Kennedy’s The Rise and Fall of the Great Powers and Francis Fukuyama’s The End of History, reflecting common Western scholarly perspectives. Religion, particularly Protestantism, is a recurring theme in these historical debates.

Regarding Japan in particular, the six points would be compared as: ① Harmony as a virtue; ③ Japan’s purported lack of contract concepts; ⑤ frugality as virtue; ⑥ a work ethic perhaps not centered on profit. These reflect differences with Protestant values.

6. Bridges to the Future

【Amazon Note】

◎ If you understand religion, you understand the world! A basic education for businesspeople

◎ The thoughts and behaviors of people around the world are governed by religion

◎ Judaism, Christianity, Islam, Hinduism, Confucianism, Buddhism—what is the same and what is different? A clear explanation of the deep ties between society and religion for the major world civilizations

【Comment by Kawada】

Daisaburo Hashizume is one of Naoki Komuro’s foremost disciples. He analyzes the world from a religious perspective. He has deep knowledge of Christianity, and his insights are very useful when dealing with U.S. stock markets. Here are paragraphs I think everyone will find useful.

Lecture 2: The Reformation and America’s Behavioral Principles—How to view Wall Street’s Greed

p120

In America, when someone makes a lot of money and others don’t, they believe it is God’s will and accept it. The market has luck and misfortune; profits can come from various circumstances and coincidences.

Included, the market is believed to be fair. People who make enormous profits believe they were blessed by the market and by God, not necessarily because of their effort. In other words, earning passive income is not a problem as long as you follow market rules.

p108

In America, people often speak of spirituality.The secret of American strength lies in the relationship between material and spiritual values. Although it may seem materialistic and focused on worldly matters, from another angle it appears that people pursue intangible values (justice, truth, the ideals of democracy) with zeal. It may look divided, but that may be a matter of perspective. Clinging to a binary view of material/spirit might prevent understanding America.

【Author Introduction】

Daisaburo Hashizume

Born in Kanagawa in 1948. He earned credits toward a PhD at the University of Tokyo’s Graduate School of Sociology, but did not complete the degree. He has taught at Tokyo Institute of Technology (1995–2013) and authored numerous titles, including “Introduction to Social Theory through Language Games,” “Discourse Strategies of Buddhism,” and many others listed here.

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5. Upcoming Activities

◇ December 15 (Wed) 11:00 a.m. Stock Voices

◇ December 16 (Thu) 8:15 a.m. Nikkei CNBC (phone interview)

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6. Q&A

Last Friday at 8 p.m., we invited two female financial planners and held a live seminar with fund manager Shin Masaru Okura and Kawada.

Ms. Abe and Ms. Kawai launched a salon called “LMS Kyoto” in Kyoto last year. They regularly host study sessions for working mothers and businesspeople on topics such as life planning, tax matters for working mothers, family financial education seminars, and hometown tax payments.

This time’s project came from the connection with Okura in our website’s series “40 Years of U.S. Stock Investment.” The two women met through study sessions with Okura and others.

We planned a live session to teach their clients the basics of asset formation using U.S. stock investments in an easy-to-understand way.

In this video, they and Okura will ask me and the other presenter questions about investing basics. Here are common questions they receive from clients.

The answers to these questions are in the video below, so please refer to it.

Free Live: Learning the Basics of U.S. Stock Investing with a Financial Planner

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