Japan: Weekly ETF and CEF Performance

Japanese ETFs trading in the U.S. returned a respectable 3.1% (combined avg.) last week. A weaker yen worked in Japanese stocks' favor, but resulted in about a 1% difference between the Nikkei 225 and U.S. traded ETFs.

The Nikkei 225 closed last Friday at 17,480.61 (reaching 17,534 intra-day Friday) up 4.4% and rallying everyday in a holiday-shortened week. However, it has yet to recover its 52-week and multi-year high of 18,300.39 (intra-day; it closed at 18,215.35) set on Feb. 26. (See chart below)

Japanese stocks and especially exporters and blue chips were helped by the Bank of Japan's decision to hold the benchmark interest rate at 0.5% and mostly positive comments about the economy.

Stocks also received a boost from strength in U.S. stocks, which also rallied on monetary policy -- an FOMC hold and a more eased stance toward inflation.

As mentioned above, the 10 Japanese ETFs (including 2 CEFs) trading in the U.S. returned a combined average 3.1% last week. They up a combined average 4.3% for the year.

Here's their combined average return over the past several weeks:

03/09 - 03/16: -1.9%
03/02 - 03/09: +2.0%
02/23 - 03/02: -4.8%
02/16 - 02/23: +0.9%
02/09 - 02/16: +3.6%

See the chart below for more information.

Disclosure: The author does not own shares of any funds mentioned in this article.

Click to enlarge chart

Every fund except the Japan Smaller Capitalization Fund (closed-end) is positive on the year. It lags WisdomTree's JP High-Yielding Equity (DNL) by 7.5%. Another closed-end fund, the Japan Equity Fund, Inc (JEQ), also lags on a year-to-date basis, although it is up 3.5%, and was last week's best performing fund, gaining 3.9%.

Vanguard's Pacific Stock ETF (VPL) is proving the benefits of being diversified, given its additional exposure to Australia, Hong Kong and Singapore. It is the second-best performing fund year-to-date, up 5.3%.

Overall, WisdomTree's funds continue to be the best performing on a year-to-date basis. The dividend-weighted approach is validating itself, particularly among larger cap stocks. Interestingly, among smaller caps, the SPDR Russell/Nomura SmallCap Japan (JSC) is slightly outperforming WisdomTree's JP SmallCap Dividend (DFJ).

iShares MSCI Japan Index (EWJ), the most actively traded country-based ETF, gained 3.4% last week and is up 4.9% on the year.

Lastly, notice the positive, but underperformance among those funds specialized in small(er) caps. All three of them took up the bottom end of weekly returns. This is evidence of a continued preference for larger cap stocks, especially with the yen's relative weakness against the dollar and euro.

For your reference, here's a list of the 10 funds:

iShares MSCI Japan Index (EWJ)
iShares S&P/TOPIX 150 (ITF)
Japan Equity Fund, Inc. (JEQ)
Japan Smaller Capitalization Fund, Inc. (JOF)
SPDR Russell/Nomura Prime Japan (JPP)
SPDR Russell/Nomura SmallCap Japan (JSC)
Vanguard Pacific Stock (VPL)
WisdomTree JP High-Yielding Equity (DNL)
WisdomTree JP SmallCap Dividend (DFJ)
WisdomTree JP Total Dividend (DXJ)