A new index is one thing, but even more important is the fact that the Government Pension Investment Fund (GPIF) and the Bank of Japan (BOJ) are buying equities with the goal of tracking the performance of this index. These are some of the biggest players in Japan leading by example and putting in a wall of liquidity for firms that gain inclusion.
One of the critical early questions we asked was how the WisdomTree Japan Hedged Dividend Growth Index compares to the JPX-Nikkei Index 400. We found that3:
• More than 97% of the weight of the WisdomTree Japan Hedged Dividend Growth Index is in stocks that are also included in the JPX-Nikkei Index 400. Since both indexes focus on quality and profits—albeit in different ways—this did not surprise us.
• Return on equity for the WisdomTree Japan Hedged Dividend Growth Index (10.2%) was slightly higher than it was for the JPX-Nikkei Index 400 (9.5%), but the return on assets (ROA) figure for the WisdomTree Index (3.0%) was about twice that of the JPX-Nikkei Index 400 (1.6%), leading to almost 45% lower leverage. An interesting point on the subject of leverage: the WisdomTree Japan Hedged Dividend Growth Index had less than 4% weight to Financials, whereas the JPX-Nikkei Index 400 had 18.0% weight to this same sector, certainly a notable difference.
Introducing the WisdomTree Japan Hedged Dividend Growth Fund (JHDG)
The WisdomTree Japan Hedged Dividend Growth Fund (JHDG) is designed to track the performance of the WisdomTree Japan Hedged Dividend Growth Index. We are excited to add this tool to our Japan toolkit in order to give investors more options to think about what is happening in Japan as well as how they might like to express their views in a portfolio context.
1Source: Bloomberg, with data from 11/30/12 to 2/28/15.
2Source: Tokyo Stock Exchange JPX-Nikkei Index 400 information page, as of 3/6/15.
3Source for the below bullets is Bloomberg, with data as of 2/28/15.
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 and can be impacted by events and developments in Japan that can adversely affect performance. Dividends are not guaranteed, and a company currently paying dividends may cease paying dividends at any time. 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.