As investors re-allocate their portfolios in anticipation of a rising interest rate environment, many are considering Japanese equities and country-specific ETFs to benefit from U.S. Federal Reserve rate hikes.
“As pressures build for rising interest rates, we believe investors should consider both Japanese broad market exposure and ETFs, as well as Japanese Financials, to supplement some other U.S.-sensitive rising rate plays like U.S. Financials,” Christopher Gannatti, Associate Director of Research for WisdomTree, said in a research note.
For instance, investors may consider options like the WisdomTree Japan Hedged Financials Fund (NYSEArca: DXJF), which tracks the Japanese financial sector and hedges against a depreciating yen currency, or the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ), a currency-hedged broad Japan option, to access the Japanese equities markets.
WisdomTree has found that the MSCI Japan Financials Index has exhibited some of the strongest inverse correlation to U.S. rising interest rates. Over the nearly five-year period ended September 2017, Japanese financials have shown even greater sensitivity to rising U.S. interest rates than U.S. financials.