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An Alternative ETF for Japan and a Weaker Yen


An ETF that may begin to hit some radars thanks to the enormous increase in interest and strong asset inflows into Japan equity based ETFs is the little known FEFN (iShares MSCI Far East Financials Sector, Expense Ratio 0.48%).

Debuting back in early 2010, the fund only has approximately $6 million in assets under management while averaging about 5,400 shares traded daily.

As we all know, EWJ (iShares MSCI Japan, Expense Ratio 0.51%) and DXJ (WisdomTree Japan Hedged Equity, Expense Ratio 0.48%) have been reeling in assets like no one’s business thus far in 2013, taking in $3.2 billion and $4.7 billion respectively this year.

If one looks at a chart of FEFN, they will quickly note that late in 2012, several trading sessions went by where the fund did not even trade a share, but since 2013 has begun, the fund trades on a regular basis and has had several days where volume has eclipsed 25-50k shares.

Granted, compared to the larger EWJ and DXJ this activity is still quite small, but this is quite typical for what we see oftentimes in the path of maturity of certain “niche” ETFs.

FEFN offers exposure to the Far East/Asian financial sector, with a 63% weighting towards Japan, and the remainder of the portfolio being invested in Hong Kong and Singapore. [Japan ETFs Open the Floodgates]

Top holdings in the ETF at the moment are Mitsubishi UFJ Financial Group Inc. (9.13%), Sumitomo Mitsui Financial Group Inc (6.79%), Mizuho Financial Group Inc (5.80%), and AIA Group Ltd. (5.63%).

Based on the inflows in DXJ, the weakening in the Yen spurred on by Japan monetary policy has clearly been a topic of focus among ETF portfolio managers, and has translated into strong asset flows in related ETFs.

Conceptually, financial stocks should stand to benefit from a weakening Yen, as the largest banks in Japan with Yen heavy balance sheets will likely see a lift in earnings results due to stronger demand in the lending markets.

EWJ and DXJ on the other hand, tend to have heavy portfolio investment in Japanese exporters (companies like Takeda Pharmaceutical, Canon, Honda Motor, Toyota Motor for example) and FEFN offers a different perspective and exposure to the historic scenario that is currently unfolding in Japan.

iShares MSCI Far East Financials Sector


For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.