Investors who think the Bank of Japan will be compelled to launch more monetary easing to weaken the yen and boost the economy might want to take a look at WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ).
The ETF tracks Japan’s stock market but is designed to hedge exposure to fluctuations between the value of the U.S. dollar and the Japanese yen. It can be thought of a pure play on Japanese equities without the influence of currency moves. The fund holds $643.4 million in assets and charges an expense ratio of 0.48%.
The largest Japanese stock ETF is iShares MSCI Japan Index Fund (NYSEArca: EWJ) with assets of $4.2 billion and fees of 0.51%. The fund does not hedge its foreign currency exposure. That means its performance will suffer when the yen weakens versus the dollar. The reverse it also true – a stronger yen will give the ETF a tailwind.
The yen has dropped against the dollar the past couple months on expectations the Bank of Japan will announce additional monetary stimulus to aid the flagging economy. Central bank stimulus weakens the yen and helps the country’s exporters.
CurrencyShares Japanese Yen Trust (NYSEArca: FXY), which tracks the movement of the yen versus the U.S. dollar, is down about 4% the last three months.
The favorite to become Japan’s next prime minister, Shinzo Abe, has pledged to pressure the Bank of Japan to launch unlimited monetary easing to revive the economy. [Japanese Yen ETF Drops to Seven-Month Low]
Increased focus on multinationals
The weaker yen has helped WisdomTree Japan Hedged Equity Fund (DXJ) outperform iShares MSCI Japan Index Fund (EWJ) recently.
DXJ is up 4.5% the past three months compared with a 0.7% gain for EWJ, according to Morningstar performance data. Of course, DXJ will trail EWJ during periods when the yen is rising against the greenback.
It should be noted that DXJ weights stocks by dividends while EWJ weights by market capitalization. This can result is different sector allocations and other contrasts between the two funds.