Vanguard FTSE Japan ETF: July 2026 update

• Vanguard is a pioneer in index investing and launched its first ETF in 2001

• This ETF offers exposure to a broad range of companies in Japan

• It’s closely tracked the FTSE Japan Index since launch

How it fits in a portfolio

An ETF is a basket of investments that often includes company shares or bonds. They tend to track the performance of an index such as the FTSE Japan Index and trade on stock exchanges, like shares. This means their price fluctuates throughout the day.

The Vanguard FTSE Japan ETF invests in a range of large and medium-sized Japanese companies across a variety of sectors.

An ETF is one of the simplest ways to invest and can be a low-cost starting point for an investment portfolio aiming to deliver long-term growth. ETFs that track the Japanese market could be used to diversify a portfolio that’s focused on other areas like the US and Europe.

Manager

Vanguard is a pioneer when it comes to index investing, having created the first retail index fund in 1976. It now runs some of the largest index funds and ETFs in the world. Given its size, it has a big investment team with the expertise and resources to help its ETFs track indices and markets as closely as possible, while having the scale to keep costs down.

Vanguard ETFs are run by a large, global team. They’re spread across three investment hubs around the world – the US, UK and Australia. This team-based approach means there’s no named manager on the ETF. Vanguard has run this ETF since 2013.

Vanguard also has a trading analytics team, which is responsible for ensuring the ETFs buy and sell investments efficiently and at a competitive cost. This involves analysing data from different brokers and banks. Lower costs should help the ETFs track their benchmarks as tightly as possible.

Process

This ETF aims to track the performance of the FTSE Japan Index. It does this by investing in all the companies in the index, currently 476, and in line with each company’s index weight. This is known as full replication and can help the ETF track the index closely.

The ETF has a large amount invested in the industrials sector which made up 26.1% of the ETF at the end of June 2026. Other key sectors include technology, consumer discretionary and financials.

Reducing costs is a key part of keeping the difference in performance between the ETF and the benchmark to a minimum. In any ETF, factors like taxes, dealing commissions and spreads, and the cost of running the ETF all drag on performance. To help keep these costs down, the team aims to make large investments in companies instead of lots of small transactions.

Vanguard will also lend some of the investments in the ETF to other providers in exchange for a fee, which can offset some of the costs. It will only lend securities to a limited number of high-quality approved dealers. Vanguard indemnifies the fund against any loss from this process, meaning there should be no negative impact on investors. However, stock lending adds risk.

As this ETF is listed offshore investors are not usually entitled to compensation from the UK Financial Services Compensation Scheme.

Culture

Vanguard is one of the largest asset managers in the world and manages around $12trn of assets globally. The group aims to put the client at the forefront of everything it does, which drives its focus on quality, low-cost index products.

John Bogle founded Vanguard in 1975, and it’s owned by investors. This allows Vanguard to redirect its profits back to investors in the form of lower fees, instead of paying dividends to external shareholders. Bogle believed in creating products that simply track the performance of a market rather than taking a shot at picking individual companies which may beat them.

The team running this ETF works closely with other equity research and risk departments across the business. They have daily and weekly meetings to discuss ongoing strategy which could add good support and challenge on how to run the ETF effectively.

ESG Integration

Vanguard is predominantly an index fund house. While it’s offered exclusions-based index funds for many years, it’s lagged peers in offering index funds that explicitly integrate Environmental, Social and Governance (ESG) criteria by tracking indices that tilt towards companies with positive ESG characteristics, and away from those that don’t.

Vanguard’s Investment Stewardship team carries out most of the firm’s voting and engagement activity. Its stewardship activity is grounded in the firm’s four principles of good governance: board composition and effectiveness, board oversight of strategy and risk, executive pay and shareholder rights.

The Investment Stewardship team produces frequent insights on their engagement activity at both a corporate and governmental level. Investors can also access fund-by-fund proxy voting records, although voting rationales are not provided. That said, voting and engagement case studies can be found in the firm’s annual Investment Stewardship report and quarterly Engagement and Voting reports.

Vanguard courted controversy in 2022 when it left the Net Zero Asset Managers’ Initiative, a group of asset managers that have committed to achieving net zero carbon emissions by 2050. It claimed its decision would improve clarity for investors and allow it to speak independently. We view this as a disappointing backward step. Furthermore, in 2024 and 2025, it was reported that Vanguard failed to support a single shareholder proposal requiring more action from investee companies on environmental and social matters.

The Vanguard FTSE Japan ETF tracks an index that doesn’t specifically integrate ESG considerations into its process. The ETF will therefore invest in shares issued by companies in any sector in line with the benchmark.

Cost

In October 2025, Vanguard reduced this ETF’s ongoing annual fund charge from 0.15% to 0.10%.

The annual charge to hold ETFs in the HL Stocks & Shares ISA, SIPP or Fund & Share Account is 0.35% (capped at £150 p.a. in each account) and 0.25% in the HL Lifetime ISA (capped at £45 p.a.). There are no charges from HL to hold ETFs within the HL Junior ISA. As ETFs trade like shares, both a buy and sell instruction will be subject to the HL share dealing charges.

Performance

Since launch in May 2013, the ETF has done a good job of tracking the FTSE Japan Index, returning 188.6%* versus 194.2% for the index. As expected, it’s lagged the benchmark over the long term because of the costs involved in managing the ETF. However, the tools used by the managers have helped to keep performance tight to the index.

Over the past 12 months, the ETF rose 32.82%. Remember, past performance isn’t a guide to the future.

Japan's major stock market indices reached a series of new record highs throughout the year. The market was supported by government policies aimed at boosting growth, a more optimistic backdrop under Prime Minister Sanae Takaichi, and continued improvements in corporate governance.

Technology was the best-performing sector and a significant contributor to the ETF’s returns. Semiconductor companies that make computer chips and the equipment needed to produce them were among the strongest performers, driven by continued demand for artificial intelligence (AI) infrastructure and advanced chips.

Industrials and financials were the next largest contributors. A weak Japanese yen benefited companies that export more of their goods abroad, particularly large industrial and manufacturing businesses. This is because a weaker yen makes Japanese goods more attractive to overseas buyers.

Banks also performed well as interest rates in Japan moved higher. Higher rates increase the cost of borrowing, which can help boost banks' profits. The Bank of Japan raised interest rates twice over the past year to their highest level since 1995.

Given Vanguard’s size, experience and expertise running ETFs, this ETF should continue to track the index well in future, though there are no guarantees.