WisdomTree, the ETF issuer specializing in dividend and earnings weighted funds, announced a change to the Japan Total Dividend Fund (DXJ) beginning April 1. DXJ will still follow the same equities and maintain an expense ratio of 0.48%, but will also seek to neutralize the affects of the volatile currency market and limit the impact of the fluctuations of the Japanese yen against the dollar. The fund will change its name to the WisdomTree Japan Hedged Equity Fund.
The main purpose of the move is to allow investors to have access to the Japanese equity markets without also taking on currency risk. This is no small issue given that the exchange rate has fluctuated between 85.4 yen to a dollar up to 101.5 yen to a dollar just over the past 52 weeks. “Many investors believe that the Japanese equity markets have performed poorly recently because their exporting companies have been significantly plagued by the strength of the
Japanese yen,” said Bruce Lavine, WisdomTree President & COO. “If the yen were to weaken, many would consider that to be a catalyst for rising exports and for the Japanese equity markets to out-perform broader international markets.”
Unhedged investments present an interesting dilemma for U.S. investors; a stronger yen improves returns in their home currency, but may harm the Japanese market since it makes exports more expensive. Conversely, as the yen depreciates, the exchange value of investors’ Japanese holdings declines but tends to boost the export sector of the Japanese economy. By limiting this currency risk, investors can focus on the performance of the securities and remove one of the greatest conflicts that comes with investing in Japanese equities (see a complete list of Japan Equities ETFs).
DXJ will be WisdomTree’s second currency hedged equity fund. Earlier this month, WisdomTree launched the International Hedged Equity Fund (HEDJ), the first ETF to offer international equity exposure while neutralizing the impact of currency movements on overall returns. The fund will seek to track the performance of the WisdomTree DEFA International Hedged Equity Index, a dividend-weighted benchmark that offers exposure to Europe, Australasia, and the Far East while also neutralizing exposure to fluctuations between the value of the U.S. dollar and non-U.S. currencies reflected in the index.
For investors seeking a pure play on the Japanese yen, two funds offer exposure. The WisdomTree Dreyfus Japanese Yen Fund (JYF) offers investors exposure to the yen by investing in short-term yen denominated money market instruments. Another option is the Rydex CurrencyShares Japanese Yen Trust (FXY) which tracks the spot price of the yen against the dollar.
Author's Disclosure: No positions at time of writing.