Bestinvest says
For investors that wish for low cost exposure to Japan the Legal & General Japan Index fund offers one option. In the past the fund has been relatively successful at achieving this and its variance from this index has been roughly in line with peers. Furthermore this tracker does not use derivatives or conduct stock lending and therefore does not expose investors to counterparty risk. Fees are also not excessive. However investors should be aware that trackers by their very nature will underperform the index due to costs.
The fund's aim is to track the performance of the Japanese equity market as represented by the FTSE World Japan Index.
The fund does this largely through purchasing the stocks in the index to match their weight in the index and the number of investors in the trust. This process is referred to as full replication. However this can be expensive and inefficient for smaller companies in the index so the manager may use stratified sampling where it is deemed appropriate which reduces costs but also increases the divergence from the index (known as tracking error).
The trust does not use derivatives in seeking to track the index only to manage cash etc. The manager will also not engage in stock lending, which can help to increase returns. Investors should not therefore be exposed to counterparty risk.