BlackRock (NYSE: BLK) added on to its line of iShares currency hedged exchange traded funds for those looking for exposure to Japan through a relatively new, multi-factor index, the JPX-Nikkei 400.
According to a recent press release, BlackRock introduced the iShares Currency Hedged JPX-Nikkei 400 ETF (NYSEArca: HJPX) on Thursday. The new ETF has a 0.48% expense ratio
HJPX will try to reflect the performance of the JPX-Nikkei 400 Net Total Return USD Hedged Index, which acts as a hedged version of the JPX-Nikkei 400, a relatively new benchmark of 400 Japanese equities targeted for their return on equity, cumulative operating profit, quality and capital efficiency.
The JPX-Nikkei 400 may be seen as an alternative index that uses a multi-factor approach, as opposed to a traditional market capitalization methodology. Specifically, 1,000 stocks are selected based on trading value in the past three years and market value on the selection base date at the end of June. Each stock is scored by a 3-year average return-on-equity, 3-year cumulative operating profit and market value on the selection date, with weights of 40%, 40% and 20%, respectively. 400 stocks are then selected by the final ranking, according to Nikkei Indexes.
“iShares Currency Hedged JPX-Nikkei 400 ETF allows investors to gain broad exposure to Japanese companies tha have been selected based on perceived shareholder-friendly activities, while mitigating for currency movements,” Jane Leung, Managing Director at BlacRock iShares, said in the press release. “Investors can easily combine HJPX with its unhedged version, JPXN, to tailor currency risk while maintaining consistent Japanese equity exposure.”
HJPX is seen as a currency-hedged version of the iShares JPX-Nikkei 400 ETF (NYSEArca: JPXN), which also has a 0.48% expense and $131.5 million in assets under management. HJPX holds JPXN and applies foreign currency forward swaps to hedge against a depreciating Japanese yen.
Due to its indexing methodology, JPXN and HJPX have a slightly greater tilt toward mid-cap stocks, compared to the iShares MSCI Japan ETF (NYSEArca: EWJ), which holds large- and mid-capitalization equities tracked by the MSCI Japan Index, a cap-weighted benchmark. HJPX has a 48.2% tilt toward mega-caps, 38.1% in large-caps and 13.5% in mid-caps. In contrast, EWJ has a 52.8% mega-caps, 38.0% large-caps and 9.2% mid-caps.
Moreover, industrials at 19.9% makes up the largest sector weight in HJPX’s portfolio, followed by financials 19.4%, consumer discretionary 18.8%, information technology 10.0%, consumer staples 9.4%, health care 8.6%, materials 6.1% and telecom 5.5%. On the other hand, EWJ has a larger position in consumer discretionary 22.2%, followed by financials 19.7%, industrials 18.2%, information tech 10.2% and health care 7.6%.
The new HJPX will also be competing against recently launched Deutsche X-trackers Japan JPX-Nikkei 400 Hedged Equity ETF (NYSEArca: JPNH), the currency-hedged equivalent to the Deutsche X-trackers Japan JPX-Nikkei 400 Equity ETF (NYSEArca: JPN), which also tracks the JPX-Nikkei 400 Index.
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Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.