ETF Trends
ETF Trends

Donald Trump’s victory has been good for Japanese markets, with currency-hedged country-specific ETFs attracting greater attention as the yen currency weakens against the U.S. dollar. Just look at the iShares Currency Hedged MSCI Japan ETF (NYSEArca: HEWJ).

HEWJ, one of the largest ETFs that hedges yen risk against the dollar, is up nearly 9% this month and resides near its 52-week high.

Earlier this year, the yen also depreciated after Prime Minister Shinzo Abe’s ruling coalition acquired a majority in the parliament’s upper house. Japanese equities rallied and the yen weakened on hopes that the more hands-on administration would enact further measures to support the economy.

Investors, though, can position ahead of any further additional stimulus measures through currency-hedged Japan country-specific ETFs. As the name suggests, a currency-hedged ETF strategy helps diminish the negative effects of a depreciating local currency against the U.S. dollar – if a foreign currency weakens against the USD, international investors would generate a lower USD-denominated return.

The currency-hedged ETFs would essentially outperform non-hedged funds when the foreign currencies depreciate against the U.S. dollar, but the opposite would also be true if the foreign currency appreciates.

“>Japanese earnings revisions have started ticking higher after sliding throughout the first half. We see further upside, despite tepid domestic growth and relatively low corporate margins from an international perspective, as yen weakness should boost earnings. The bar for earnings beats has also been lowered,” according to BlackRock.

ETF investors may also look to some relatively new dynamic or adaptive currency-hedged international stock strategies. For instance, BlackRock offers the iShares Adaptive Currency Hedged MSCI Japan ETF (BATS: DEWJ), which may shift from a 0% unhedged currency exposure to a 100% fully hedged, depending on differences in interest rates, relative valuations, currency momentum and currency volatility.

“Japan’s equity market has recently become more momentum driven, reversing a long-standing anomaly in which Japan was the only major global market where momentum didn’t work but value did. The trend is an investor’s friend (but a fickle one),” adds BlackRock, the world’s largest asset manager.

Global yields have jumped on expectations that the presidency of Donald Trump would fuel inflation and growth. However, the BOJ could step in to keep the recent spike from getting out of hand. Further supporting the outlook for ETFs like HEWJ is the notion of up to three interest rate hikes in 2017 by the Fed.


For more information on the Japanese market, visit our Japan category.