Investors the world over by now know that exchange traded funds tracking Japanese stocks have been soaring in recent sessions after the Bank of Japan last week unveiled added monetary stimulus to boost the world’s third-largest economy.
Japan ETFs also soared after Japan’s Government Pension Investment Fund, which holds about $1.1 trillion in assets under management, increased its allocation to Japanese and overseas equities to 25% each, up from 12% each, and cut down its domestic bond allocations to 35% from 60%, Wall Street Journal reports.
Yen hedged ETFs were, predictably, among the biggest beneficiaries of those headlines with funds such as WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ),WisdomTree Japan Hedged Small Cap Fund (NasdaqGM: DXJS) and the Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEArca: DBJP) racing to new highs last Friday. [BOJ Boosts Japan ETFs]
The ebullience continued Monday when more than five ETFs with short yen components touched new highs. One of those ETFs was the WisdomTree Japan Hedged Tech Media & Telecom Fund (NYSEArca: DXJT). Although still small and thinly traded, DXJT could and arguably should shed those labels after hitting another record high Monday.
Like its broader counterparts, such as DXJ and DBJP, DXJT is a currency hedged ETF and in this environment of yen weakness, the hedged yen sector has been doing its job with authority. Over the past month, DXJT is up 11.5% while the CurrencyShares Japanese Yen Trust (NYSEArca: FXY) is off 4.4%.
Obviously, the weak yen is an important catalyst to DXJT’s recent and future upside, but there is more to the story than Prime Minister Shinzo Abe’s and Bank of Japan Governor Haruhiko Kuroda’s efforts to weaken the yen and it involves high-flying Chinese e-commerce giant Alibaba (NYSE: BABA).
DXJT features a nearly 9.4% weight to Japan’s Softabank (OTC: SFTBY), whichowns 32.4% of Alibaba. The ETF’s weight to Softbank is nearly 300 basis points above its allocation to its second-largest holding, Hitcahi. [An ETF With a Backdoor to Alibaba]
Quite simply, Softbank’s Alibaba is legendary. Jack Ma’s company now has a market value of $250 billion, but Softbank paid just $20 million for its initial Alibaba stake.
As for DXJT, it’s Alibaba-aided run can continue in the near with the company’s first earnings report due out Tuesday. According to average analysts’ expectations, the company is expected to show net profits of $1.17 billion over the third quarter, with earnings per share at 36 cents.
WisdomTree Japan Hedged Tech Media & Telecom Fund
Todd Shriber owns shares of Alibaba.