Investors are turning to Japanese equities as Prime Minister Shinzo Abe aggressively pushes for economic reforms to weaken the yen and stimulate the economy. Consequently, investors can use Japan hedged-equity exchange traded funds to diminish their exposure to currency risks while capturing the ongoing growth story.
In the upcoming webcast, Have You Hedged Your Clients’ Japanese Equity Exposure?, Daniel Brehon, FX Strategist at Deutsche Bank, Luke Oliver, Director at Deutsche Asset & Wealth Management, Raman Aylur Subramanian, Managing Director & Head of Index Applied Research for the Americas at MSCI, and Christopher Hugar, portfolio manager at Nottingham Advisors, come together to outline the strategy behind a Japan hedged-equity investment style as the Bank of Japan adheres to a loose monetary policy.
Japan’s expansionary policies have attracted greater attention, but foreign investors will likely be exposed to a depreciating yen currency. U.S. investors who take on Japanese equities will essentially invest in yen-denominated Japanese securities. Consequently, if the U.S. dollar strengthens or the yen weakens, investors will see a lower U.S.-dollar denominated return.
With a Japan hedged-equity ETF, like db X-trackers MSCI Japan Hedged Equity Fund (NYSEArca: DBJP), investors can gain exposure to the Japanese equities market without the currency risk. DBJP includes currency forwards to hedge against a depreciating Japanese yen. [Rising Inflation Could Bolster Japan ETFs]
Additionally, the ETF includes heavy exposure to industrials and consumer discretionary sectors that are more export oriented and benefit from a weaker Japanese yen. For instance, the fund’s top holdings include automobile and tech companies like Toyota Motor Corp 5.9%, Honda 2.1% and Hitachi Ltd 1.3%.
Prime Minister Shinzo Abe plans to promote growth through the so-called third arrow of his Abenomics program, targeting a 2% annual expansion rate, or twice that of the previous 20 years, reports Jacob M. Schlesinger for MarketWatch.
Abe recently updated his plans to include a corporate-tax cut to “below 30%’ from its current 35% rate. Additionally, he is setting aside new “special economic zones,” with increased deregulation to cut through red tape.
The new proposals “largely exceed market expectations,” Nomura Securities’ economists said.
For more information on Japan, visit our Japan category.
Financial advisors who are interested in learning more about hedging currency risk with Japanese equity exposure can register for the Wednesday, June 25 webcast here.
CORRECTION: Updated DBJP’s hedging tool.