WisdomTree Plans Small-Cap Yen-Hedged ETF

ETF Trends

Building on the stunning popularity of the WisdomTree Japan Hedged Equity Fund (DXJ) as the Bank of Japan continues its aggressive monetary policies, WisdomTree Investments has filed for exemptive relief to add a small-cap version of the exchange traded fund.

According to a Securities and Exchange Commission filing, the WisdomTree Japan Hedged SmallCap Equity Fund will try to reflect the performance of the WisdomTree Japan Hedged SmallCap Equity Index, which employs a dividend-weighted methodology to provide exposure to small-cap Japanese equities while neutralizing Japanese yen currency fluctuations to the U.S. dollar.

“The companies included in the Index typically have greater exposure to the value of global currencies and, in many cases, their business prospects historically have improved when the value of the yen has declined and have weakened when the value of the yen has increased,” the filing said.

The fund will enter forward currency contracts – a type of futures contracts between two parties to buy or sell a currency at an agreed upon rate and date – to offset exposure to the yen.

The small-cap yen-hedged ETF filing comes as WisdomTree’s DXJ grows in popularity. DXJ has gathered $4.1 billion in assets year-to-date, leading the U.S.-listed ETF business in new asset inflows, according to IndexUniverse. [Currency Hedged Japan ETF Rallies 40% on Plunging Yen]

Popularity in yen-hedged exposure to Japanese equities has skyrocketed after the Bank of Japan pledged to throw $1.4 trillion into the economy in under two years, Reuters reports.

“The key is to achieve the 2% inflation target,” Bank of Japan Governor Haruhiko Kuroda said in the article. “We have in mind a time frame of roughly two years, but we’ll take necessary steps until the target is met.”

The Bank of Japan came under pressure to double its inflation target to 2% after newly elected Prime Minister Shinzo Abe came into power. The country has been plagued with a two decade long deflationary environment.

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Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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