Japan easily has one of the largest financial markets and the
country also takes the 3
spot in the list of the world's largest economies. The country
has faced significant trouble in past years though, as it has
been unable to bring itself out of its multi-decade malaise.
However, rigorous reforms implemented by Japan's new Prime
Minister, Shinzo Abe, after coming to power have reinvigorated
the nation's markets. Moreover, Shinzo Abe's party saw a recent
victory in the elections which could allow him to continue his
stimulus programs on a wide scale (read
Japanese Yen ETF Investing 101
Abenomics for Yen
Abe's plan for the Japanese economy, popularly known as
Abenomics, is a radical effort to end years of deflation. His
risky and aggressive policies are designed to boost exports and
push the yen down. Abe had to adopt unpopular structural reforms
to keep Japan growing.
The falling yen is boosting the nation's exports as Japan
relies more on overseas trade for growth. A weaker yen makes
Japanese products more competitive on a global basis, shooting
the profit margins up for their key businesses (read:
As Yen Weakens, Currency Hedged ETFs Soar
However, renewed fears over a global economic recovery might
provide some strength to the yen, at least for the near term.
Lately, the yen was stronger than the dollar for the last two
days after Fed Chairman Ben Bernanke declared that he was not in
a rush to increase interest rates after the U.S. central bank
bond-buying stimulus program slowed down.
These in turn cautioned investors in the stock markets of
Japan and the effects were also seen in exports. However, with
policies in place and the recent voting results, this trend is
unlikely to continue for long.
Possible choice in this interesting space
For investors who wish to play in this space, the possible
choices are enumerated below. We note that both the
are hedged equity funds, and thus could be great picks to play
Japan without worrying about currency issues:
WISDOMTREE JAPAN HEDGED EQUITY
Launched in June 2006, DXJ tracks the WisdomTree Japan Hedged
Equity Index and provides exposure to Japan's equity markets but
hedges the currency risk. The large blend fund has a huge asset
base of $11.5 billion and charges 48bps in fees (see
DXJ vs. DBJP: Which is the Better Hedged Japan
With a total of 315 holdings in its basket, the top 10 stocks
contribute 38% of the total assets. DXJ has a focus on bigger
stocks, as 63% are in large caps and 32% are in mid caps. The ETF
has posted good returns of 39.24% as of Jun 30 on a one-year
Furthermore the fund has a decent yield of 2.02% and has an
average daily volume of 2.77 million shares a day. DXJ currently
has a Zacks ETF Rank of '1' or Strong Buy.
db X-trackers MSCI Japan Hedged Equity Fund (
Launched in June 2011, DBJP tracks the MSCI Japan US Dollar
Hedged Index offering an exposure to Japan and a hedge against
any fall in the currency. The large blend fund has an asset base
of $150.6 million and charges 50bps in fees.
The product holds 320 stocks in total and its top 10 holdings
contribute 24% to the fund. DBJP is tilted more towards large cap
stocks which contribute almost 60% with a moderate exposure in
mid-cap stocks adding 36% to the fund. The ETF has posted solid
returns of 49% as of June 30 for the trailing one-year period
Is NKY A Better Japan ETF?
Furthermore the fund has a yield of 0.73% and has an average
daily volume of 29,000 shares a day. The fund has good offerings
in its space, but has been lately overlooked by potential
investors. DBJP currently has a Zacks ETF Rank of '2' or Buy.
The Bottom Line
Japanese exports have recently suffered due to a rise in yen,
but this is a temporary phase and the yen may go down again soon.
Prime Minister Abe's policy will continue to push the currency
down, which will favor these ETFs.
The markets had reacted positively earlier this year and
trends are likely to continue with the NIKKEI touching 15,000
levels. Given this, it may be time for investors to take
advantage of the situation and consider hedged Japan ETFs for
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DB-XT MS JAP HD (DBJP): ETF Research Reports
WISDMTR-J HEF (DXJ): ETF Research Reports
ISHARS-JAPAN (EWJ): ETF Research Reports
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