There has been a great deal of excitement surrounding the economic policies of “Abenomics” that aim to end deflation in Japan and restore more positive economic growth. Since the election of prime minister Shinzo Abe at the end of 2012, billions of dollars have flowed into Japanese equities. Most allocations to Japan have come in the form of broad-based exposure vehicles, and there have also been increasing allocations to individual stocks. And in 2013, many broad-based indexes1 delivered compelling returns.
However, as Abenomics continues to gain traction and Abe makes more progress on his growth strategy for Japan (the “third arrow” of Abenomics), we believe that there will be an ongoing effort to distinguish the stocks and sectors most primed to benefit from the new government initiatives. While broad-based approaches should continue to serve many investors well, we believe there is also a place for more finely honed precision tools to express specific views regarding how Abenomics will play out.
WisdomTree has developed five new Japan sector Indexes designed to be primary beta benchmarks for three Japanese investment themes stemming from Abenomics, which we describe in detail below.
WisdomTree’s Five Japan Sector Indexes
The three themes WisdomTree identified—and that broadly characterize our new sector Indexes—are reflation, Abe’s growth strategy and yen sensitivity.
Reflation
• WisdomTree Japan Hedged Financials Index
• WisdomTree Japan Hedged Real Estate Index
A critical component of Abenomics involves the reflation of financial assets. The Bank of Japan (BOJ) itself has stated its goal to suppress equity risk premiums by expanding its balance sheet to purchase exchange-traded funds and making direct investments into real estate investment trusts. The Japanese financial sector stocks and real estate-related companies are therefore part of a theme many refer to as “Japanese reflation.”
Abe’s Growth Strategy