April 4 (Reuters) - Rayliant Global Advisors and

Sumitomo Mitsui DS Asset Management (SMDAM) on Thursday launched

the first actively managed exchange-traded fund (ETF) to focus

specifically on Japanese small- and mid-cap stocks, the

companies said.

Japan's Nikkei stock market index finally broke above 1989

records in February and continued setting a series of new highs

throughout March.

Its rise has sparked a resurgence of interest in

Japan-focused ETFs, which have pulled in more than $10 billion

since January 2023, according to data from State Street Global

Advisors. But all but one of those - the Matthews Japan Active

ETF - have been passive index-linked funds, said Bryan

Armour, ETF analyst at Morningstar.

In contrast to the Matthews ETF, whose holdings include

household names like Hitachi Ltd ( HTHIF ) and Mitsubishi Corp ( MSBHF )

, the just-launched Rayliant SMDAM Japan Equity ETF ( RAYJ )

will target companies with a market capitalization of

between $2 billion and $5 billion.

"These smaller and midcap that often don't have much of a

profile outside of Japan are much more entrepreneurial and much

more like the kind of growth companies" with which U.S.

investors are familiar, said Jason Hsu, founder and chief

investment officer of Rayliant.

Examples range from Sanrio Co ( SNROF ), which owns the

'Hello Kitty' brand, to Maruwa Co ( MAWAF ), a manufacturer of

spcialist ceramic components for high-end electronics, Hsu said.

While Japan's smaller stocks have also rallied this year,

they haven't kept pace with the larger companies included in the

Nikkei. In yen terms, while the Nikkei has gained 17.9% so far

in 2024, the MSCI Japan Small-Cap Index and the Standard &

Poor's Japan Mid-Cap Index are up 11.75% and 8.8% in yen terms,

according to data from Rayliant.

Rayliant will provide SMDAM with a macro view of the market

and quantitative analyses of individual Japanese equities. SMDAM

will combine that with fundamental research to construct an ETF

portfolio of 30 to 50 individual stocks. The fund will trade on

the New York Stock Exchange and will levy a fee of 72 basis

points.