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Individual Investors on the Hook for Japan ETF Losses


Individual investors who piled into hot-performing Japan ETFs this year could end up holding the bag if this week’s Nikkei plunge is the start of something worse.

WisdomTree Japan Hedged Equity (DXJ) and iShares MSCI Japan (EWJ) are the two best-selling ETFs this year, reeling in $7.6 billion and $5.6 billion, respectively, according to IndexUniverse data.

They were on track for weekly losses of more than 6% in midday trading Friday.

Performance-chasing often shows up in ETF flow trends.

Financial advisors have also started allocating money to Japan for the first time in years, WSJ.com’s Total Return blog reports.

“And, as is often the case, investors seem to have sunk the most money in the ETF right before the plunge,” it added. “Don’t expect Japan ETF investors to be crying in their soups just yet. The WisdomTree ETF is still up 29% this year. But if Japan’s crash continues, many small investors will be along for the ride.” [Currency-Hedged Japan ETFs Fall Harder as Yen Strengthens]

EWJ, the iShares ETF, on Thursday suffered its biggest drop since 2011 after the earthquake and tsunami, Bloomberg News reports.

“Everybody’s concerned about the market being overvalued and Japan in particular has had massive positive returns,” said Greg Peterson, director of investment research at Ballentine Partners, in the article. “People are ready to pull the trigger at any sign that any thing’s going wrong.”

“Investors should not just chase top performers this year and this is a good example,” said Todd Rosenbluth, director of ETF Research at S&P Capital IQ.

iShares MSCI Japan

The opinions and forecasts expressed herein are solely those of John Spence, 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.