Long gone are the days when Japan’s behemoth economy, the world’s third-largest behind the U.S. and China, was accessible via just cap-weighted exchange traded funds.
A tumbling yen and the Bank of Japan’s commitment to Federal Reserve-style monetary easing has put the spotlight on the advantages of currency hedged ETFs, such as the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) and the db X-trackers MSCI Japan Hedged Equity Fund (NYSEArca: DBJP). [Investors Missing Out on Japan ETFs’ Rally]
Buoyed in part by last year’s surges for DXJ and DBJP, currency hedges continue to ascend in prominence. So are fundamentally-weighted ETFs or those funds that take into considerations factors such as volatility, dividends and quality. [This is the Time for Currency Hedged ETFs]
Investors can take the quality road to Japan with the newly minted SPDR MSCI Japan Quality Mix ETF (NYSEArca: QJPN). QJPN debuted in Japan as part of six single-country ETFs from State Street’s (NYSEArca: STT) State Street Global Advisors unit, the second-largest U.S. ETF issuer, that emphasize the quality factor.
QJPN and its stablemates track MSCI indices, indicating the index provider’s definition of quality is something investors should become familiar with. The quality factor “captures excess returns to stocks that are characterized by low debt, stable earnings growth and other ‘quality’ metrics,” according to MSCI. [A Quality Approach to Country ETFs]
“In early September, revised data showed that Japan’s gross domestic product (GDP) contracted an annualized 7.1% in the second quarter, from the first quarter, as businesses as well as consumers retrenched after the government raised the sales tax. John Krey, S&P Capital IQ’s international investment analyst, believes that even though exports should receive a lagged boost from the U.S. dollar appreciation versus the yen, internal sources of demand will not be very accommodating. Krey believes another tax hike will take place in 2015. Yet Standard & Poor’s Economics forecasts 1.8% GDP growth in 2014 for the Japanese economy,” said S&P Capital IQ in a new research note.