Japanese stocks and related exchange traded funds have been among the worst performers in developed markets so far this year, but hedge funds remain undaunted.

Hedge fund managers are still bullish on Japan, even after the Nikkei 225 stock index dropped 11% this year and the Japanese yen appreciated 3% against the U.S. dollar, reports Lawrence Delevingne for CNBC. [Overweighting Equity ETFs, Foreign and Domestic]

The WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ), which tries to hedge against a weakening Japanese yen, has declined 8.2% and the iShares MSCI Japan ETF (NYSEArca: EWJ), which is exposed to currency risks, dropped 7.9% year-to-date.

According to Bank of America Merrill Lynch data, there has been “minimal change” in Japanese positioning among investment managers. Moreover, shorts on the yen have also increased slightly over the past few weeks.

“We continue to be very positive on our positions in Japan,” Eton Park of Eton Park Capital Management said. “We believe in the company-specific stories and industry dynamics of the stocks we own and feel that their valuations are attractive on both an absolute and relative basis.”

For instance, DXJ’s stock portfolio shows a price-to-earnings ratio of 12.2 while EWJ has a 13.5 P/E ratio, according to Morningstar. In contrast, the S&P 500 Index shows a P/E of 16.6. [Very Valuable Value ETFs]

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