Time to Focus on Yen-Hedged Japan ETFs? - ETF News And Commentary


Japan easily has one of the largest financial markets and the country also takes the 3 rd 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 ETFs are hedged equity funds, and thus could be great picks to play Japan without worrying about currency issues:


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 ETF? ).

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 basis.

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 ( DBJP )

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 (also read 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 exposure.

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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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , ETFs

Referenced Stocks: DBJP , DXJ , EWJ



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