WisdomTree has enjoyed an incredible level of success with its
Japan Hedged Equity Fund (
this year. Thanks to the success that has come from focusing on
Japan, the company now appears ready to put out another product
targeting the Japanese markets (read:
Time to Focus on Yen-Hedged Japan ETFs?
The issuer has filed for the Japan Bond Bear Strategy Fund, a
strategy that would benefit investors if government bond yields
rise (or in other words, bond prices slump). While a great deal of
the key information - such as expense ratio or ticker symbol - was
not available in
the initial release
, other important points were released in the filing.
We have highlighted those below for investors, who may be looking
for a new fixed income play targeting Japan from WisdomTree should
it pass regulatory hurdles (see more in the
Proposed Fund in Focus
The proposed ETF looks to track the price and yield performance of
the WisdomTree Japan Bond Bear Strategy Index, before fees and
expenses. At the same time, it seeks to provide hedge against any
fall in the Japanese yen.
The product intends to maintain both short and long positions -
short exposure to the monthly performance of Japanese Government
Bonds (JGBs) and long exposure to the monthly returns of U.S.
In terms of the currency hedge, the fund looks to enter into
forward currency contracts or futures designed to partially offset
exposure to the Japanese yen relative to the U.S. dollar. With this
strategy, the fund looks to outperform when the yen is sliding, and
underperform unhedged benchmarks when the yen is strengthening
Japanese Yen ETF Investing 101
How does it fit in a portfolio?
This proposed product could be an interesting choice for investors
seeking exposure to the Japanese fixed income market while keeping
interest rate risk in check.
This is because the prime minister, Shinzo Abe, has started
implementing his stimulus program, popularly known as Abenomics, in
an effort to lift the world's third largest economy out of feeble
growth and deflationary pressure. Abenomics is a combination of
aggressive quantitative easing policies from Bank of Japan (BOJ),
increased public infrastructure spending and the devaluation of the
Additionally, the BOJ plans to achieve a 2% inflation target within
two years that would raise interest rates, including yields on JGB.
If yields rise, JGB would fall as both yields and bond prices move
in the opposite direction (read:
Japan ETFs You Need to Sell Now
Yields on 10-year JGBs have risen to over 67 bps from around 35 bps
in April when BOJ announced a plan to purchase more than ¥7
trillion ($68 billion) of bonds every month. This suggests a
bearish trend for JGB at least in the short term.
Can it succeed?
The proposed ETF does not have any direct competitor due to its
unique strategy. However, one note - PowerShares DB Inverse
Japanese Govt Bond Futures ETN (
) - could provide tough competition to the WisdomTree proposed
all the Inverse Bonds ETFs here
This ETN seeks to provide unleveraged exposure to the U.S. dollar
value of the monthly returns on a short position in 10-year JGB
futures plus the monthly T-Bill index returns. The note tracks the
DB USD Inverse JGB Futures index. The product has managed assets
worth $39.7 million so far, and charges 50 bps in fees annually.
The proposed fund, if approved, could give investors a new way to
play the Japanese bond market. The product might charge higher fees
from investors annually due to its unique bear strategy.
Given the volatility in the Japanese bond market, it is difficult
to say how the proposed fund from WisdomTree will be received by
investors should it pass regulatory hurdles. The success of the
product depends highly on the timing of the launch, and how the
Japanese economy is performing then.
Should the bond market be facing troubles though, we could see a
surge in interest for this corner of the market, though only time
will tell if this proposed WisdomTree fund is preferred over more
established products like JGBS.
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WISDMTR-J HEF (DXJ): ETF Research Reports
ISHARS-JAPAN (EWJ): ETF Research Reports
PWRSH-DB IJ GBF (JGBS): ETF Research Reports
MAXIS-NIK 225 (NKY): ETF Research Reports
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