CashNews.co
WisdomTree (WETF) has long been known as an ETF
provider focusing on dividend-weighted products, and also
international markets. It is in this international space where
WisdomTree has really made a name for itself though, particularly
in the case of Japan.
In 2006, WisdomTree put out the Japan Hedged Equity Fund
(DXJ) offering up investors a way to gain exposure to
Japanese shares, but without the fluctuations of the yen against
the dollar. In other words, this fund looked to outperform other
Japan ETFs when the yen was tumbling against the dollar, but likely
underperform when the yen was strong.
This product languished in a state of unpopularity for years, until
the election of Shinzo Abe and the implementation of ‘Abenomics’
changed the status quo in Japan. With his election, the Japanese
yen tumbled against the dollar, benefiting exporters and causing
the Japanese stock market to surge (read Time to Focus on
Yen-Hedged Japan ETFs?).
However, in dollar terms, the rise of the Japanese stock market was
muted, so any investor who bought into a product like the
iShares MSCI Japan ETF (EWJ)lost out against its
competitors like DXJ. In fact, for a six month stretch from
November 2012 to May 2013, DXJ added over 50% compared to a 32%
gain for EWJ, cementing the WisdomTree product as a go to choice
for Japanese exposure.
This solid level of outperformance—and speculation over further
losses in the yen—caused many investors to pile into the product to
the tune of over $10 billion in assets under management. Now, DXJ
makes up close to one-third of all of WisdomTree’s assets under
management, making it a blockbuster ETF for the small issuer.
Replication in other markets?
Thanks to this success, WisdomTree has embarked on a huge
currency-hedged ETF campaign, putting out several of these to a
variety of markets around the world. This includes broad
Europe (HEDJ)several individual European
countries like the UK (DXPS) and Germany
(DXGE)and back to Asia again for Korea (DXKW) and Japan SmallCap
(DXJS) products too (see Inside the New Korea
Hedged ETF).
These have seen varying levels of success so far in their short
time periods on the market, though HEDJ has accumulated over half a
billion on its own. And while this is a pretty solid
currency-hedged ETF lineup, it doesn’t appear that WisdomTree is
done just yet, as evidenced by recent SEC filings.
SEC Filings in Focus
The latest filings once again focus on hedged products for Japan,
this time with a sector focus. Filings with the SEC include hedged
products targeting the following sectors in Japan: health care,
capital goods, tech/media/telecom, financials, and real estate.
While some of these segments—in particular those with a heavy
export tilt—could make some sense, others seem to be almost too
specialized. It is also important to note that such specialized
sector products don’t even exist for the unhedged Japan market, so
it is questionable if the demand is there for Japan sector funds at
this time.
Bottom Line
WisdomTree had great success with DXJ, but this is almost to the
point of taking it too far. Investors haven’t really embraced their
smallcap fund yet, as it has less than $30 million in assets under
management (see For Japan ETFs, Think Small Caps).
There is also the issue of what the next steps for Abenomics are at
this point. A huge currency depreciation campaign has already
begun, and in many ways, has already stabilized. It seems unlikely
at this time that even more losses will come for the yen,
especially when you consider that the yen, as represented by
FXYis actually up against the dollar when
looking at the past six months.
Given this, it is hard to say that these products will have that
much appeal from a hedged-currency perspective, as the days of
losses for the yen appear to be over for now. Fortunately these
proposed funds, if ever approved, will have a monopoly on Japanese
sectors, so there might be some decent interest from this
perspective (see Short Japan with These ETFs).
The real story here though is that WisdomTree is doubling down on
its currency-hedged ETF program in a country that has provided a
huge chunk of its assets under management. The firm currently has
half a dozen such products, and while many might have thought this
would be the end (for now) of this lineup, it appears as though
WisdomTree has other plans.
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30
Days. Click to get this free report
>>
WISDMTR-J HEF (DXJ): ETF Research Reports
WISDMTR-JP HSCF (DXJS): ETF Research Reports
ISHARS-JAPAN (EWJ): ETF Research Reports
CRYSHS-JAP YEN (FXY): ETF Research Reports
WISDOMTREE INV (WETF): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days. Click
to get this free report
IShares MSCI Japan (AMEX:EWJ)
Asset Historical Chart
From Jul 2024 to Aug 2024
IShares MSCI Japan (AMEX:EWJ)
Asset Historical Chart
From Aug 2023 to Aug 2024