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Why do investors continue to pour money into EWJ and expose themselves to currency risk when the...

Why do investors continue to pour money into EWJ and expose themselves to currency risk when the DBJP offers the same Japanese stock exposure, but hedged against the yen? Another of Dennis Hudachek's 10 Overlooked ETFs is the INDA, tracking the same Indian index as the INP, but with lower expenses. And don't forget IAU, basically the same exposure as GLD, but at 15 bps cheaper per year.
Comments (5)
  • Ron Myers
    , contributor
    Comments (256) | Send Message
     
    Stocks can go down as well as up and when that happens it is not so bad to have the built-in long yen position. The hedge is not free also, I assume it would drain slightly from NAV in a flat market. I would rather buy EWJ which is more liquid and hedge yen exposure myself.
    7 Dec 2012, 12:51 PM Reply Like
  • fxinot
    , contributor
    Comments (27) | Send Message
     
    Your math and logic are correct. However, the bid/ask spreads on the alternate country ETF's are terrible. You would lose a lot of gain when you sold. Until the alternate ETF's advertise and gain liquidity, they are doomed to second class status, regardless of their lower cost basis.
    7 Dec 2012, 01:22 PM Reply Like
  • eabyrd
    , contributor
    Comments (311) | Send Message
     
    Terrible liquidity in those less popular funds... DBJP 450 on the volume today... lol.
    7 Dec 2012, 01:29 PM Reply Like
  • dturlington
    , contributor
    Comments (3) | Send Message
     
    Re the fund cost differential (.40 vrs .25) between GLD and IAU, my impression is that GLD is more appropriate for active traders despite the higher expense ratio because the stock price is ten times as high. So for any large and active trader who pays commissions based on the number of shares traded rather then the amount invested, the overall costs of trading GLD likely would be less than with IAU. IAU, on the other hand, seems better for the buy and hold investor since the fund costs are less. And with compounding, the savings build up.
    7 Dec 2012, 03:13 PM Reply Like
  • Jeremy Johnson, CFA
    , contributor
    Comments (783) | Send Message
     
    The Yen is about fairly valued where it's at. Also, the Japanese stock market tends to move inverse the currency. When you fully hedge, your position becomes more speculative, not less. There are decent amount of dollar earnings in Japanese companies as well. I would not hedge over 50%. I personally hedge 25% on my Japanese portfolio, but purely to reduce volatility in USD terms. It will probably hurt long-term returns.
    7 Dec 2012, 08:28 PM Reply Like
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