A New ETF With a Backdoor to Alibaba

ETF Trends

News of Alibaba’s filing for a U.S. initial public offering that values the company at almost $110 billion has captivated markets since the headlines broke late Tuesday afternoon.

Ensuing action on Wednesday has been disappointing as shares of Yahoo (YHOO), which owns 24% of the Chinese e-commerce juggernaut, are down nearly 7%. Yahoo’s decline is reportedly attributable to Wall Street’s dissatisfaction with Alibaba’s $109 billion valuation when $150 billion to $200 billion was expected.

That does not mean Alibaba will not be a success as a public company. For investors that want to participate in potential upside for Alibaba when it goes public and that do not want single stock risk or cannot get shares of the IPO, select exchange traded funds will offer Alibaba exposure at varying percentages. [China Internet ETF Could Quickly Add Alibaba After IPO]

Beyond the obvious, such as those funds focused on IPOs or Internet stocks, a new ETF offers some leverage to Alibaba though it is not being framed as an “Alibaba ETF.” The WisdomTree Japan Hedged Tech, Media & Telecom Fund (DXJT) is that ETF.

DXJT debuted last month as part of five-ETF suite of Japan sector ETFs from WisdomTree that employ the USD/JPY hedged feature that has helped make the WisdomTree Japan Hedged Equity Fund (DXJ) one of the largest single-country ETFs. [WisdomTree to Launch Yen-Hedged Sector ETFs]

DXJT’s leverage to Alibaba comes by way of an almost 10% weight to SoftBank (SFTBY). The Japanese Internet and telecom giant owns 37% of Alibaba, or 25% more than Yahoo’s stake. In fact, SoftBank operates Yahoo Japan. The company also has stakes in Sprint (NYSE: S) and China’s RenRen (RENN).

At nearly 10%, Softbank is DXJT’s largest holding by almost 300 basis points over Canon.

The WisdomTree Japan Hedge Tech Media & Telecom Index is “weighted by float-adjusted market capitalization, designed to provide exposure to Japanese tech, media and telecom companies while at the same time neutralizing exposure to fluctuations between the yen and the U.S. dollar,” according to WisdomTree.

SoftBank CEO “Masayoshi Son said on Wednesday that his company has no plans to sell part of its stake in Alibaba in the initial public offering of the Chinese online retailer,” Reuters reported.

That may be a shrewd move by SoftBank because Alibaba conducts more e-commerce than Amazon (AMZN) and e-Bay (EBAY) combined and is far more profitable than Amazon. [Momentum ETFs Hit Hard Again]

Shares of SoftBank are down 2.6% today, but the stock’s trailing P/E of 18.2 is well below the 28.56 sported by Yahoo.

The WisdomTree Japan Hedged Tech, Media and Telecom Index (WTJTMTH) had a P/E of almost 22.6 and a price to book ratio of 1.52 as of May 6, according to WisdomTree data. DXJT is up nearly 1% since its debut.

DXJT Top-10 Holdings

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Table Courtesy: WisdomTree

Tom Lydon’s clients own shares of Amazon.

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