Market Overview

3 ETFs Propelled By Japan's Recession Recovery

3 ETFs Propelled By Japan's Recession Recovery

Japan has emerged from its recession following good but not great economic data from the last quarter of the year where the economy expanded at an annualized rate of 2.2 percent.

The gain comes after contracting the two previous quarters, which sent the county into a recession (by definition).

Many economists forecasted an expansion of 3.7 percent; however emerging from its recession is undoubtedly a step in the right direction for Japan.

Prime Minister Shinzo Abe implemented his 'Abenomics,' which has consisted of the Bank of Japan injecting large amounts of money into the economy as well as buying government bonds and other assets to spur spending within the economy.

Corporate profits are at record highs and the continued devaluation of the Japanese yen will help the country’s largest manufacturers increase exports.

The two-year stimulus package currently underway has started to bring life back into a struggling Japanese economy and will likely continue to propel it forward in 2015.

Highlighted below are three ETFs that have been affected by the positive news out of Japan in recent weeks.

The iShares MSCI Japan ETF (NYSE: EWJ) follows 311 publicly-traded Japanese companies across 11 industries. The top sectors consist of consumer discretionary at 23 percent, industrials at 19 percent, and financials also making 19 percent.

The top individual holdings include: 

  • Toyota Motor Corp (NYSE: TM) with a 6.6 percent weighting,
  • Mitsubishi Financial Group Inc (NYSE: MTU) at 2.8 percent, and
  • Softbank Corp coming in at 2.1 percent.

The ETF is down up 4 percent over the last 12 months and up 1 percent over the last six months. Since bottoming out in the first week of the New Year it is up almost 11 percent. EWJ has an expense ratio of 0.49 percent. 

The WisdomTree Japan Hedge Equity Fund (NYSE: DXJ) consists of 324 Japanese companies as well as 25 short currency contracts on the yen against the U.S. dollar. The strategy eliminates the exposure to fluctuations between the yen and greenback while providing exposure to Japanese equities.

The top holdings in the ETF are:

  • TM at 5.7 percent,
  • MTU with a 5 percent holding, and
  • Canon Inc. coming in at 3.8 percent.

DXJ is up 10 percent over the last 12 months, and 5 percent over the last six months. Since bottoming out in the first week of January the ETF has rallied 11 percent. The ETF has an expense ratio of 0.48 percent.

Investors should be aware that a hedging strategy could be a doubled-edged sword. The ETF will capitalize on both the rising equities and the falling yen in Japan, but on the flip side the ETF will be negatively affected by falling equities and a rising yen.

The Wisdom Tree Japan Small Cap Fund (NYSE: DFJ) is made up of 605 small cap Japanese companies across eight sectors; with industrials at 25 percent and consumer discretionary at 24 percent being the most weighted sectors.

The top individual holdings include:

  • Kaken Pharmaceuticals Co Ltd with a 0.8 percent holding,
  • Sanrio Co Ltd making up 0.7 percent of the ETF, and
  • Nishi-Nippon City Bank Ltdcoming in at 0.7 percent as well.

DFJ is up 3 percent over the last 12 months and down 4 percent over the last six months. Since early January the ETF has gained 9. The ETF has an expense ratio of 0.58 percent. 


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