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Is Another Great Year Ahead For Japan ETFs?

ByZacks Investment Research
Published 01/05/2014, 12:13 AM
Updated 07/09/2023, 06:31 AM

It has been a little over one year since the start of Abenomics in Japan, a program from Prime Minister Shinzo Abe to boost the Japanese economy. This three pronged approach, which leans heavily on an easy money policy, was met by skepticism by many, but it has certainly helped to increase stock prices (in yen terms) by a huge amount.

In fact, the Nikkei soared more than 50% in 2013, the best yearly performance in more than 40 years for the key Japanese benchmark. But after such a huge gain, can investors hope for another big year from the nation?

We think it may be possible, especially given the extreme easing measures that the Bank of Japan is engaged in, and the prospect for continued expansion of this program later in 2014. Plus, with the taper in the U.S., the yen is likely to fall against the dollar, further helping to make Japanese exports competitive in key global markets. And to top things off, Japanese stocks remain at reasonable valuations, so there is still hope from a value look.

How to Play

Given the huge currency risks in this market, a look to hedged ETFs seems like a great bet. That is because these remove the currency risks of the yen falling against the dollar for U.S. investors, potentially allowing for outperformance if the yen remains weak.

Fortunately, there are two such large cap focused funds which fit this bill, the WisdomTree Japan Hedged Equity Fund (DXJ) and the db-X MSCI Japan Hedged Equity Fund (DBJP). Both of these funds had an amazing 2013 and easily outperformed their unhedged counterpart, the iShares MSCI Japan ETF (EWJ).

But for more on these ETFs, and the broad Japan market, make sure to watch our short video on the subject below:

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