ETFs to Gain as Japan Pledges to Invest $36B in U.S. Projects

In a significant diplomatic and economic move, Japan recently announced a pledge to invest $36 billion in three massive U.S. energy and manufacturing projects. This "first tranche" is part of a broader $550 billion commitment from Tokyo aimed at rebuilding the American industrial base while securing critical supply chains for Japan.

The $36 billion investment package centers on a giant 9.2-gigawatt (GW) capacity gas-fired power plant in Ohio, a deepwater crude export terminal off Texas and a synthetic industrial diamond facility in Georgia, thereby targeting three strategic industries: natural gas power generation, energy export infrastructure and critical mineral manufacturing.

For the U.S. companies directly operating the aforementioned projects as well as those supplying critical inputs to these facilities, the influx of capital from Japan promises new growth opportunities, expanded operations and potential revenue streams. For investors, this creates an opportune moment to gain exposure to the benefits of this investment framework through exchange-traded funds (ETFs) with significant exposure to the beneficiary companies.

As we delve into the specific industries and corporations poised to gain from this landmark investment plan, in the next section, a clearer picture should emerge of which funds are best positioned to ride this wave of economic activity.

Companies & Industries to Gain

Since Japan’s initial $36 billion tranche is concentrated in three flagship U.S. projects, here’s a breakdown of the industries and companies associated with these projects and thus are likely to see a direct or indirect benefit:

The centerpiece of Japan’s recent investment pledge involves spending $33 billion in natural gas-fired power plant located in Portsmouth, OH. While the project will be led by SB Energy (a subsidiary of Japan’s SoftBank Group), U.S. energy giant GE Vernova GEV is considered a prime candidate and likely supplier for the advanced gas turbines and grid infrastructure for this facility.  Other major contributors interested in equipment supply include Hitachi HTHIY, Toshiba and Mitsubishi Electric MIELY.

Japan aims to invest $2.1 billion in the Texas GulfLink, a deepwater crude oil export terminal off the Texas coast. While the project is being primarily developed by Dallas-based private operator Sentinel Midstream, oil and gas mammoth Exxon Mobil XOM has indirect, infrastructure-level involvement in the aforementioned project, primarily through its partnership with Sentinel. 

Japan has also committed to invest $600 million in Georgia’s synthetic industrial diamond grit facility, operated by Element Six, a subsidiary of the British multinational diamond company De Beers Group.

ETFs to Gain

While the companies and industries mentioned above are the direct beneficiaries of this initial $36 billion pledge, it is important to view this as the first move in a much larger $550 billion strategic roadmap announced last year. This broader package spans critical industries from oil and gas, as well as nuclear energy, to semiconductor manufacturing and critical minerals mining. 

Consequently, we expect to see sustained capital inflows for major industry operators such as Chevron CVX, Cameco CCJ, Intel INTC, MP Materials MP and Albemarle ALB. 

While building positions in these individual stocks can be highly rewarding over the long term, it also exposes your portfolio to idiosyncratic risks and near-term price volatility. To mitigate these risks, investors may prefer a “basket approach.” 

The following ETFs provide diversified exposure to these same growth drivers, along with the direct beneficiaries of the $36 billion plan, offering a cushion against sudden market upheavals while ensuring you don't miss out on the industrial revival fueled by this historic investment framework.

State Street Energy Select Sector SPDR ETF XLE

This fund, with assets under management (AUM) worth $34.95 billion, offers exposure to 22 companies in the oil, gas and consumable fuel, energy equipment and services industries. Its top three holdings include major oil and gas players: XOM (23.99%), CVX (17.37%) and ConocoPhillips COP (6.78%).

XLE has rallied 19.1% over the past year. The fund charges 8 basis points (bps) as fees. It traded at a good volume of 58.18 million shares in the last trading session. 

VanEck Rare Earth and Strategic Metals ETF REMX

This fund, with net assets worth $2.63 billion, offers exposure to 32 companies involved in producing, refining, and recycling rare earth and strategic metals and minerals. Of these, ALB holds the first position in this fund, with 8.16% weightage, while MP holds the sixth position with 5.53% weightage. 

REMX has surged 123.5% over the past year. The fund charges 58 bps as fees. It traded at a volume of 0.85 million shares in the last trading session. 

State Street Industrial Select Sector SPDR ETF XLI

This fund, with AUM worth $31.09 billion, offers exposure to 79 companies from the following industries: aerospace and defense; industrial conglomerates; marine transportation; transportation infrastructure; machinery; ground transportation; air freight and logistics; commercial services and supplies; professional services; electrical equipment; construction and engineering; trading companies and distributors; passenger airlines; and building products. Of these, GEV holds the fourth position in this fund, with 4.14% weightage.

XLI has soared 26.1% over the past year. The fund charges 8 bps as fees. It traded at a good volume of 10.62 million shares in the last trading session. 

iShares MSCI Japan ETF EWJ

This fund, with net assets worth $18.74 billion, offers exposure to 181 large and mid-sized companies in Japan. Of these, HTHIY holds the third position, with 2.87% weightage, while Softbank Group holds the ninth position with 2.17% weightage.

EWJ has risen 31.3% over the past year. The fund charges 49 bps as fees. It traded at a good volume of 9.33 million shares in the last trading session. 

Global X Uranium ETF URA

This fund, with net assets worth $7.25 billion, offers exposure to 52 companies involved in mining uranium and producing nuclear components. CCJ holds the first position in this fund, with 23.22% weightage. 

URA has surged 93.5% over the past year. The fund charges 69 bps as fees. It traded at a good volume of 3.09 million shares in the last trading session. 

First Trust NASDAQ Semiconductor ETF FTXL

This fund, with net assets worth $1.63 billion, offers exposure to 31 U.S. semiconductor companies. INTC holds the second position in this fund, with 9.44% weightage. 

FTXL has soared 69.5% over the past year. The fund charges 60 bps as fees. It traded at a volume of 0.04 million shares in the last trading session. 

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