This week’s growth-oriented exchange-traded fund (ETF) offers investors exposure to Japanese equities while hedging away the currency risk to let you sleep better at night. The WisdomTree Japan Hedged Equity Fund (DXJ) is pegged to an index that holds the biggest and best Japanese stocks.
The story for investing in Japan is an interesting one. The country has been locked in a deflationary spiral for almost three decades, and that has been the chief contributor to the decades-long decline in the benchmark Nikkei 225 index. Given that history and other downbeat factors, you would think that the Japanese equity investment landscape would be somewhat barren.
Yet nothing could be further from the truth. In fact, over the past three years, the Nikkei 225 has trounced the performance of stocks in developed markets such as Europe and here at home, spiking more than 43% vs. gains of some 8% in Europe’s STOXX 50 and nearly 25% in the S&P 500.
Japan continues to put the pedal to the metal on “Abenomics” — the economic reforms promoted by the country’s Prime Minister Shinzo Abe — which means more quantitative easing from the Bank of Japan, and likely more upside for Japanese stocks. Most recently, the Japanese central bank has fearlessly waded into negative-rate territory in a move that has led to a recent rise in Japanese stock prices.
While global stock market conditions have weighed on DXJ, which is down 15% year to date, the fund is poised to rally on the back of domestic stimulus, and offers a more promising near-term potential than many other developed economies. DXJ has around $11 billion in assets under management, an expense ratio of 0.48% and a distribution yield of 3.77%.
DXJ is invested in consumer discretionary and industrial companies, which make up nearly half of its holdings, as well as information technology, consumer staples, financials, health care and other sectors. DXJ’s top holdings include Japan Tobacco (5.24%), Toyota (4.87%), Canon (3.80%), Mitsubishi UFJ Financial (3.62%) and Takeda Pharmaceuticals (3.16%).
If you think it might be advantageous to pay attention to the Japanese equity story, the WisdomTree Japan Hedged Equity Fund (DXJ) might be a good place to start.
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