• If the market maker is looking to access liquidity during the U.S. trading day, one Nikkei 225 (NKY) futures contract trades on average $1.2 billion a day.7
• If a market maker were to access liquidity during Japanese hours, the underlying basket of equities that make up DXJR trades about $2.5 billion a day.9
Bottom line: We believe enough liquidity can be had at any time.
As testament to that, if you look at the Bloomberg screen shot below, in the highlighted yellow box you can see that four blocks of trades went off at 12:36:36:
• 490,291 shares of DXJR traded at $25.94.
• 5,135 shares of DXJR traded at $25.94.
• 8,990 shares of DXJR traded at $25.94.
• 35,655 shares of DXJR traded at $25.94.
In total, these trades aggregated to 540,071 shares trading at $25.94.
If you look farther down the page, in the highlighted blue box, you can see that the market was $25.90 bid at $25.94 offer right before the trades took place. A customer bought $14.0 million worth of DXJR on the offer while the Japanese market was closed. This is quite a demonstration of competitive liquidity that can be created in ETFs by the market makers.
Conclusion
WisdomTree created a suite of Japan hedged sector ETFs for this specific type of exposure in demand for Japanese real estate companies. The largest holding in DXJR, Mitsui Fudosan, through its capital raise, has brought renewed focus on this segment of the market. For those looking at ways to get exposure to these types of companies, we believe DXJR represents a broad basket of real estate companies. Investors should look at the trades that occurred above as an example of the ample liquidity that is available.
1Source: “Introduction of the ‘Quantitative and Qualitative Monetary Easing,’” Bank of Japan, 4/4/13.
2Source: Bloomberg, for period 12/31/12 to 12/31/13.
3Source: Bloomberg, for period 12/31/13 to 5/31/14; refers to the TOPIX for the broad Japanese market and the TOPIX Real Estate Index for the real estate sector.
4Mitsui Fudosan Co. Ltd. was a 9.94% holding in the WisdomTree Japan Hedged Real Estate Fund (DXJR), a 0.76% holding in the WisdomTree Global ex-US Real Estate Fund (DRW) and a 0.06% holding in the WisdomTree DEFA Fund (DWM) as of 5/31/14.
5The public offering was for 100 million shares. On July 22 a potential 10 million more shares may be issued to the underwriters in connection with over-allotments. See http://www.4-traders.com/MITSUI-FUDOSAN-CO-LTD-6491315/news/Mitsui-Fudosan–Notice-regarding-Determination-of-Number-of-New-Shares-to-Be-Issued143KB-18613338/.
6Junko Fujita, “Mitsui Fudosan Gives Smallest Discount in $3.4 Bln Share Sale,” Reuters, 6/16/14.
7Sources: WisdomTree, Bloomberg, with data as of 6/20/14.
8Source: Bloomberg, as of 5/31/14.
9Source: Bloomberg, as of 5/31/14.
Important Risks Related to this Article
There are risks associated with investing, including possible loss of principal. Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty. Funds focusing their investments on certain sectors increase their vulnerability to any single economic, regulatory or sector-specific development. This may result in greater share price volatility. The Fund focuses its investments in Japan, thereby increasing the impact of events and developments in Japan that can adversely affect performance. The Fund uses various strategies to attempt to minimize the impact of changes in the Japanese yen against the U.S. dollar, which may not be successful.
Derivative investments can be volatile, and these investments may be less liquid than other securities and more sensitive to the effects of varied economic conditions. As this Fund can have a high concentration in some issuers, the Fund can be adversely impacted by changes affecting those issuers. Due to the investment strategy of this Fund, it may make higher capital gain distributions than other ETFs. Please read the Fund’s prospectus for specific details regarding the Fund’s risk profile.
WisdomTree Director of Capital Markets Anita Rausch contributed to this piece.