Market Overview

Five Japan ETFs Your Broker Forgot To Mention


Ah, yes. Japan. Land of the rising sun. More like land of the dark clouds when it comes to the performance of the iShares MSCI Japan Index Fund (NYSE: EWJ) this year. The largest and most liquid Japan-specific ETF is down 15% on a year-to-date basis.

Sure, the earthquake and tsunami that ravaged Japan in March played a big part in EWJ's glum performance this year. Then again, EWJ currently trades below its post-natural disaster lows. A strong yen hasn't helped matters.

Still, this the third-largest economy in the world we're talking about and some would argue Japan's cash-rich companies are now offering exceptional valuations to investors. Not to mention, nearly three-quarters of Japanese exports head to emerging markets, according to the Wall Street Journal. So there's an emerging markets kicker in Japan without the emerging markets risk.

With that, let's have a look at some Japan-specific ETFs your broker forgot to mention.

IndexIQ Japan Mid-Cap ETF (NYSE: RSUN): The IndexIQ Japan Mid-Cap ETF made its debut in June becoming the first mid-cap ETF focusing solely on Japan. Since then, RSUN's 5% drop is nothing to write home about, but that performance also sharply outpaces EWJ. Home to 100 stocks, industrials account for over 21% of RSUN's weight, giving the ETF some correlation to a potential bounce Japanese equities.

iShares MSCI Japan Small Cap Index Fund (NYSE: SCJ): SCJ's sector weights don't differ that much from what RSUN offers, but this small-cap play is home to nearly 700 stocks and with an allocation of almost 10.5% to technology names, SCJ is at the very least a decent idea for playing Japan's emerging markets export story.

WisdomTree Japan SmallCap Dividend Fund (NYSE: DFJ): DFJ bests SCJ with a smaller expense ratio (0.58% compared to 0.63% for the iShares offering.) Industrials account for 23.5% of DFJ's weight and technology names check in at almost 12%. Overall, six sectors get double-digit allocations here, making DFJ one of the more diverse Japan-specific ETFs. With all the cash Japanese companies have sitting around, more dividend hikes are a legitimate possibility.

WisdomTree Japan Hedged Equity ETF (NYSE: DXJ): If you're looking to cut back on your yen exposure while still staying in the Japan game, the WisdomTree Japan Hedged Equity ETF is a fund you might want to have a look at. With an expense ratio of 0.48%, DXJ is the least expensive member of this list to this point and the ETF focuses primarily on large-cap names such as Toyota (NYSE: TM) and Honda (NYSE: HMC). Despite the yen hedge, DXJ has slightly lagged EWJ year-to-date.

SPDR Russell/Nomura Small Cap Japan ETF (NYSE: JSC): Don't forget about the SPDR Russell/Nomura Small Cap Japan ETF if you want to Japanese small-caps and we say that for two simple reasons. First, JSC has the lowest expense ratio (0.55%) of the small-cap ETFs mentioned here. Second, JSC has outperformed DFJ and SCJ year-to-date.

Bull case: The yen weakens and the U.S. and global economies bounce back, bolstering demand for Japanese exports.

Bear case: The yen remains strong and investors view Japanese stocks as more value trap than value.

Posted-In: Long Ideas News Short Ideas Dividends Specialty ETFs New ETFs Small Cap Analysis Emerging Market ETFs Best of Benzinga


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