An Olympic Jolt for Japan ETFs?
September 9th, 2013 at 7:30am by Tom Lydon
On Saturday, the International Olympic Committee (IOC) awarded the 2020 Summer Games to Tokyo. While that marquee event is seven years away, the announcement could put the spotlight on popular Japan ETFs and the leverage to ensuing infrastructure spending that investors have come to expect after Olympic announcements.
The iShares MSCI Japan ETF (NYSEArca: EWJ) and the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) have not just been stellar performers this year due in large part to the weakening yen, both have been leaders in terms of gathering assets. DXJ and EWJ, in that order, were the top-two asset-gathering ETFs this year as of the end of August. [Vanguard Sidesteps Month of Record ETF Outflows]
DXJ, EWJ and other Japan ETFs have been benefiting from Abenomics, but investors may want to have a closer look at Japan funds in the following the Olympics news. DXJ allocates nearly half of its combined weight to the industrial, technology and materials sectors, groups that should benefit from increased infrastructure spending. EWJ, which is not currency-hedged, devotes over 35% of its weight to those sectors. [Central Bank Bonanza Could Impact Japan, U.K. ETFs]
Tokyo beat out Istanbul and Madrid for the privilege of hosting the 2020 Summer Games. London hosted the 2012 Summer Olympics and Rio de Janeiro will host the 2016 Summer Games. Tokyo says 22 of the 37 venues proposed will be newly constructed for an estimated $3.11 billion, with 11 permanent and 11 temporary facilities planned, reports Alexander Martin for the Wall Street Journal.
Hosting international sporting events does not always lead to higher prices for the corresponding country ETFs, but in the case of Japan the Olympics news is important. Prime Minister Shinzo Abe and the Bank of Japan have, to this point, been successful in weakening the yen. That has benefited DXJ and EXJ. Particularly the former because DXJ screens for companies that derive the bulk of their revenue from outside of Japan.
However, Abe has acknowledged that it is critical to reinvigorate Japan’s domestic economy and increased infrastructure spending could play a part in doing just that. Japan, the world’s third-largest economy, has previously hosted the Olympics three times – the Summer Games in 1964 and Winter Games in 1972 and 1998.
Investors looking to participate in Japan’s potential infrastructure upside should do so with ETFs like DXJ and EWJ because international infrastructure funds, such as the iShares Global Infrastructure ETF (NYSEArca: IGF) are not heavily allocated to Japan.
iShares MSCI Japan ETF
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of DXJ.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.