WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) led all U.S.-listed ETFs in the first quarter as the fund gathered $4 billion of fresh cash.
However, the WisdomTree ETF has been lagging the performance of rivals such as iShares MSCI Japan (NYSEArca: EWJ) the past couple weeks due to a strengthening yen versus the U.S. dollar.
The WisdomTree fund invests in Japanese stocks but hedges its exposure to the yen. Therefore, it will outperform unhedged ETFs such as EWJ when the yen weakens against the dollar.
The multi-month slide in CurrencyShares Japanese Yen Trust (NYSEArca: FXY) has provided a tailwind to DXJ relative to unhedged Japanese ETFs, although the yen currency ETF has bounced somewhat the past couple weeks. [Red-Hot WisdomTree Japan ETF May Rally More on Yen Devaluation]
WisdomTree Japan Hedged Equity Fund has taken in at least $1 billion for the third month in a row.
“It’s amazing,” says Chris Hempstead, director of ETF execution services at WallachBeth Capital LLC.
The $4 billion first-quarter inflow is a massive haul for an ETF that currently holds about $5.7 billion. The fund has an expense ratio of 0.48%.
DXJ was up 18.1% year to date through March 27, compared with a gain of 11% for EWJ, according to Morningstar.
“This fund is an attractive option during periods when the yen is falling against the dollar,” says Morningstar analyst Patricia Oey in a report on DXJ.
Investors have flocked to the ETF on expectations new Japanese Prime Minister Shinzo Abe will force the yen even lower in an effort to stoke inflation and help the economy. The WisdomTree fund also tilts its portfolio toward exporters that generate more revenue outside Japan.
“In the December 2012 general election, the Liberal Democratic Party returned to power, with its leader Shinzo Abe promising to revive domestic growth,” Oey notes. “He has indicated that he plans to push the Bank of Japan to adopt a formal inflation target of 2% and use ‘unlimited’ easing to achieve it. Many economists expect the yen to weaken in 2013, which could provide a near-term boost to Japan’s exporters and Japan’s stock market.”
WisdomTree Japan Hedged Equity Fund