U.S. investors that own foreign stocks may have suffered as the Japanese yen has lost strength to the U.S. dollar. The greenback has gained 6.7% in 2012 against the yen, impacting U.S. investors dollar denominated Japanese equity gains. For example, the MSCI Japan Index is up 17.6% in local terms, but only 10% when measured in U.S. dollars. The S&P 500 has gained 12.4% in comparison.
The result is that it is difficult for Japan to consistently outperform international equity benchmarks in U.S. dollar denominations. The iShares MSCI Kokusai Index Fund (NYSEArca: TOK) tracks an index that is unique in that it offers exposure to developed international markets, ex-Japan. [Diversify By Investing with Non-Correlating ETFs]
An ETF that focuses in on Japan’s stock market and hedges foreign currency exposure is the WisdomTree Japan Hedged Equity (NYSEArca: DXJ).
The db-X MSCI Japan Currency-Hedged Equity Fund (NYSEArca: DBJP) also mitigates exposure to fluctuations between the value of the U.S. dollar and Japanese yen.
Tisha Guerrero contributed to this article.