could participate in karaoke night, those funds tracking Japanese
small-caps might be apt to select the 1980s classic "Don't You
Forget About Me." The Simple Minds hit is an appropriate one for
Japanese small-cap ETFs because as the yen has plunged and the
Nikkei has soared in recent months, the WisdomTree Japan Hedged
Equity Fund (NYSE:
) and the iShares MSCI Japan Index Fund (NYSE:
) have dominated the Japan ETF conversation.
Investors are not likely to complain about the performances of
either DXJ or EWJ. The rapidly growing DXJ is has surged almost
18 percent year-to-date while EWJ, still the largest Japan ETF by
assets, is up 9.1 percent.
Clearly, Abenomics, the term coined for Prime Minister Shinzo
Abe's efforts to devalue the yen while boosting Japan's rate of
inflation, has been kind to DXJ and EWJ. ETFs tracking Japanese
small-caps are getting in on the act, too, though these funds
remain overshadowed by DXJ and EWJ.
Overshadowed or not, there is no denying that ETFs such as the
WisdomTree Japan SmallCap Dividend Fund (NYSE:
) have started to perform quite nicely in the past month. Put
DXJ, EWJ, DFJ and DFJ's two nearest rivals side-by-side over the
past month and the result may come as a surprise to some
investors. In that group of five ETFs, DXJ and EWJ, place fourth
and fifth, respectively.
Over the past month, the gold medal for Japan ETF performance
goes to a fund ETF critics would love to hate: The SPDR
Russell/Nomura Small Cap Japan ETF (NYSE:
). As of March 14, JSC had just $66.3 million in assets and
average daily volume of about 8,000 shares per day.
Notable is the fact that on volume that was more than 25
percent above the daily average, JSC rose to its highest levels
since late 2007 on Friday. Factor in Friday's almost 0.9 percent
gain, and JSC is up nearly 10.7 percent in the past month.
Interestingly, JSC is not as volatile as some investors might
think it is. This is a small-cap ETF with annualized volatility
of 12.78 percent and a beta of 0.41 against the S&P 500,
according to State Street data
. By comparison, EWJ has a beta of 1.13 against the S&P
The aforementioned WisdomTree Japan SmallCap Dividend Fund and
the iShares MSCI Japan Small Cap Index Fund (NYSE:
) essentially tie for second place among Japan ETFs over the past
month with each sporting gains of about 9.8 percent.
The WisdomTree Japan SmallCap Dividend Fund is the largest of
the Japan small-cap ETF trio with $171.6 million in assets.
Although DFJ does not feature the USD/JPY hedge that has made DXJ
so popular with investors, the small-cap offering is intimately
levered to the weak-yen-helps-Japanese-exporters story. DFJ
devotes 45.7 percent of its combined weight to industrial and
consumer discretionary firms, which gives the ETF some positive
exposure to a weakening yen as those export-intensive industries
DFJ's underlying index compares favorably with the MSCI Japan
Small Cap Index, the index tracked by SCJ. Since inception in
June 2006, DFJ's index has outpaced SCJ's index while being less
according to WisdomTree data
That does not mean SCJ is not worth a look. The $57.6 million
ETF has an expense ratio of 0.51 percent, making it slightly
cheaper than both DFJ (0.58 percent) and JSC (0.55 percent). SCJ
is also the largest of the Japan small-cap ETF trio with 724
holdings compared to almost 430 for DFJ and 388 for JSC.
Additionally, the iShares offering makes for a credible weak
yen play with a 22 percent allocation to the industrial sector
and an almost 20 percent weight to consumer discretionary
For more on ETFs, click
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