Japan ETFs, Economy Begin To Rise

Includes: DXJ, EFA, EWJ
by: Tom Lydon

Japanese equities have outpaced those of many international markets in 2012, as the country rebuilds after the tsunami and nuclear disaster. To gain exposure to Japanese equities with some mitigation to risk, the exchange traded fund, iShares MSCI Japan Index (EWJ) offers investors an option.

"Despite the disaster and the headwinds facing the nation, Japan has managed to rebound, as it appears resilient when looking at its recent performance. Japanese equities have managed to bounce back and enter the year on a pretty strong note. The country continues to be a comparatively safe haven for investment in Asia, although some concerns are building over the strong yen," Zack's Investment Research wrote.

Independent forecasts by IHS Global Insight indicate that Japan could rebuild growth up to a 2.4% GDP in 2012. Japan's position as a safe haven when investors are risk averse will work in favor of investment due to the constant volatility as the Eurozone debt crisis rages on.

"As recovery and reconstruction proceed, investors may want to look at the dominant developed Asian equity issuer," according to S&P Capital IQ. In a new research note, S&P Capital said "ETFs offer investors a compelling way to gain exposure to Japan."

EWJ is the largest ETF that offers exposure to Japan. There is around $4.9 billion in assets under management. The index represents 311 Japanese securities and holdings are evenly represented. Currently, S&P Capital IQ rates this ETF "Overweight".

The WisdomTree Japan Hedged Equity Fund (DXJ) provides investors exposure to Japanese equities while hedging against dollar/yen fluctuations. The yen hedge has been popular with investors as DXJ has almost $622 million in assets under management. The fund has a distribution yield of 3.95% and has risen 2.1% year-to-date.

Another fund that gives investors fair exposure to Japan is the iShares MSCI EAFE Index Fund (EFA) which gives 21.4% to Japan. This fund gives substantial exposure to developed markets around the world, minus the U.S. and Canada.

iShares MSCI Japan Index

(Click to enlarge)

Tisha Guerrero contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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