The WisdomTree Japan Hedged Equity Fund (DXJ) crossed the $2 billion threshold on Friday, the latest sign that ETF investors grasp how to take full advantage of Japan’s plan to weaken its yen and provide its export economy with a shot in the arm to help end the country’s nearly 25 years of deflation.
DXJ, which had a whopping creation worth $400 million on Friday that was crucial in pushing it over $2 billion, now makes up about 10 percent of WisdomTree’s $20.13 billion in total assets under management, according to data compiled by IndexUniverse.
“Newly elected Prime Minister Shinzo Abe has been very effective through his plans and aggressive rhetoric to weaken the yen, and as a result, there has already been improved market sentiment in the world's third largest economy,” WisdomTree Director of Research Jeremy Schwartz said in a press release trumpeting DXJ’s crossing the $2 billion in assets threshold.
DXJ takes off the table the dollar-yencurrency cross—something the oldest and biggest Japan ETF, the $5.8 billion iShares MSCI Japan Index Fund (EWJ) doesn’t do. The yen’s losses have been a huge variable, shaving 15 percentage points off returns for U.S. investors over the past three months, according to IndexUniverse’s latest Currency Impact Report that’s based on MSCI data.
In other words, while local Japanese investors have had returns of 26 percent in the past three months, U.S. investors have gained just 11 percent, with the 15 percentage-point gap linked to the yen’s losses against the dollar.
“There’s definitely a broad risk-on move in Asian equities that has been helping DXJ,” said Paul Weisbruch, an ETF trader with King of Prussia, Pa.-based Street One Financial, who said he has seen a jump in interest recently in both EWJ and DXJ.
The chart below, which illustrates the price differences since the end of last year’s third quarter between DXJ, EWJ and the CurrencyShares Yen Trust (FXY), shows pretty clearly how the yen’s losses, as measured by FXY, have been a millstone for EWJ. And DXJ pretty much dodges the bullet.
“I believe DXJ offers the best tactical tool for gaining access to a country that possesses a strong negative correlation, or relationship, between its currency and its equity markets,” Schwartz said.
Looking at DXJ’s returns since the end of the third quarter is probably appropriate, because that just precedes when the ETF started raking in assets.
What changed was that as Abe’s election seemed increasingly assured, the market began listening more closely to the soon-to-be prime minister’s rhetoric about weakening the yen.
Then, in November , WisdomTree tinkered with DXJ’s index to tilt the portfolio toward export-oriented companies—the very types of firms that stand to gain the most from a weaker yen.
That set the stage for what has been some of the most rapid asset gathering seen in the ETF industry in some time.
DXJ has been neck-and-neck in asset gathering with EWJ since the end of last year’s third quarter, with the WisdomTree ETF pulling in $1.33 billion in assets, a bit more than the $1.24 billion EWJ pulled in over the same period, according to IndexUniverse’s ETF Flows Tool.
The pace of asset gathering seems to be accelerating. DXJ ended 2012 a $1.22 billion fund. That means it has pulled in more than $820 million so far in 2013.
No wonder WisdomTree is sending out press releases to tell the world.
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