Shrinking Japan GDP Shifts ETF Outlook

August 13, 2014

Deutsche X-Trackers MSCI Japan Currency Hedged Fund (DBJP | B-69) AUM: $520 million; YTD returns: -3.9 percent

DBJP tracks a currency-hedged version of the popular MSCI Japan Index, the index tracked by iShares' popular blockbuster fund, EWJ.

Unlike most international ETFs, DBJP hedges out the currency exposure inherent in investing in its underlying equities, resulting in the fund missing out on the returns and/or losses associated with an appreciating/depreciating Japanese yen.

At 0.45 percent, or $45 for every $10,000 invested, DBJP is now the cheapest fund in its segment.

WisdomTree Japan Hedged Equity Fund (DXJ | B-62) AUM: $9.88 billion; YTD returns: -1.4 percent

DXJ, named the 2013 ETF of the year, tracks a dividend-weighted index of Japanese stocks and is hedged for currency fluctuations between the dollar and the Japanese yen.

The fund selects export-oriented Japanese companies, dividend-weights them and hedges its yen exposure, positioning itself to gain from increased trade and a devalued currency. The dividend-focused screen lends the portfolio something of a value tilt.

DXJ wasn’t always currency-hedged or export-oriented. At launch in June 2006, it tracked a dividend-weighted index, adding a currency hedge in 2010, and shifting the portfolio toward exporters in November 2012.

DXJ’s low expense ratio—0.48 percent—makes it relatively cheap to hold.

iShares MSCI Japan ETF (EWJ | B-97) AUM: $15 billion; YTD returns: -0.92 percent

EWJ tracks a market-cap-weighted index of Japanese stocks and covers roughly 85 percent of the investable universe of securities traded in Japan. Launched in 1996, EWJ was the first Japan-focused ETF to come to market and quickly became the bellwether for U.S.-based investors wanting Japanese market exposure since.

With an annual expense ratio of 0.50 percent, the fund is close to the cheapest in its segment. When it comes to liquidity, EWJ is a market leader—the fund trades more than $400 million on most days, at pennywide spreads.

With almost $15 billion in assets and strong liquidity, EWJ sets itself apart within the segment.

SPDR Russell/Nomura PRIME Japan ETF (JPP | D-98) AUM: $27 million; YTD returns: -0.6 percent

JPP tracks a market-cap-weighted index of Japanese securities that represent about 96 percent of the Russell/Nomura Total Market Index. Costing 50 basis points, JPP does the best job of providing broad exposure to the Japanese equities market, according to analysts at ETF.com.

JPP falls a bit short when it comes to liquidity: The fund trades only $200,000 on most days at wide average spreads. The fund hasn’t caught on with investors since its November 2006 launch.

First Trust Japan AlphaDex Fund (FJP | C-31) AUM: $141 million; YTD returns: +3.77 percent

FJP tries to beat the broader Japanese equity market using a proprietary selection model and tiered equal-weighting scheme. The fund underweights financial stocks, which Hudachek mentioned are poised to benefit from Abenomics. FJP also loads up on technology stocks while tilting heavily toward midcap stocks in its attempts to find alpha.

Costing 0.80 percent, FJP is the most expensive fund within the segment, and tracks its index loosely. The fund’s average trading spread is 0.42 percent, so liquidity is also an issue here.

 

Find your next ETF

Reset All