When investing in overseas assets, investors will be exposed to currency risks. If the foreign currency depreciates against the greenback, any gains will be lower when converted back into USD-denominated returns. DBJP’s currency hedge helps diminish the negative effects of a depreciating foreign currency, or stronger U.S. dollar, and provides a more pure exposure to shifts in the Japanese equities market.
“Many of Japan’s largest companies are exporters, and historically, these companies have tended to perform better in a falling yen environment,” according to Morningstar analyst Patricia Oey. “As a result, over the last two decades, the MSCI Japan 100% Hedged Index USD (which reflects the costs of employing a hedge) outperformed the MSCI Japan Index USD during 62% of the unique rolling three-year periods over this span.”
Japanese equities strengthened while the yen continued to weaken against the greenback Tuesday after Japanese Prime Minister Shinzo Abe called for an early election to provide a fresh mandate for his economic policies and postpone another sales tax hike. Abe will dissolve the lower house Friday for an election expected on Dec. 14, Reuters reports.
Financial advisors who are interested in learning more about a Japanese hedged-equity strategy can register for the Wednesday, November 19 webcast here.