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Japan's Exports Rise Fastest in 2 Years: ETFs in Focus

Zacks Equity Research

Japan’s exports rose the fastest in over two years in May 2017, owing to increased demand of cars and steel, coupled with a weaker yen.


The 14.9% annualized increase in exports in May was the highest since January 2015, almost double the April figure of 7.5%. However, it fell short of market estimates of a 16.1%.


Japan’s Gross Domestic Product grew an annualized 1% in the first quarter of 2017. Though this was below market expectations of 2.2%, Japan is still witnessing its longest growth streak in over a decade. This is primarily being attributed to the surge in exports (read: Japan GDP Growth Falls Short of Expectations: ETFs in Focus).


However, Japan slipped into an unexpected trade deficit in May. Imports surged 17.8% in the month compared with market estimates of 14.5%. The trade deficit amounted to around 203.4 billion yen ($1.8 billion) per Bloomberg. However, the Finance Ministry attributed this deficit as seasonal, owing to multiple national holidays in the month.


Moreover, in its last policy setting meeting on June 16, 2017, the Bank of Japan (BOJ) voted to keep its benchmark interest rate steady at -0.1%. In order to maintain this target rate, the central bank vowed to continue purchasing assets to the tune of 80 trillion yen ($727 billion).


The Organization for Economic Co-operation and Development (OECD) earlier this month upgraded Japan’s GDP growth forecast to 1.4% for 2017, up from its earlier projection of 1.2%. It cited robust exports as the primary driver of growth.


Let us now discuss a few ETFs focused on providing exposure to Japan (see Asia-Pacific (Developed) ETFs here).


WisdomTree Japan Hedged Equity Fund DXJ


This fund is suitable for investors looking for a broad-based exposure to the Japanese economy. It seeks to invest in dividend paying companies with an export tilt.


The fund has AUM of $8.38 billion and charges a fee of 48 basis points a year. From a sector look, Consumer Discretionary, Industrials and Financials are the top three allocations of the fund, with 24.55%, 20.94% and 13.45% exposure, respectively (as of June 20, 2017). Toyota Motor Corp, Japan Tobacco Inc and Mitsubishi UFJ Financial Group are the top three holdings of the fund, with 4.94%, 3.97% and 3.83% exposure, respectively (as of June 20, 2017). It has returned 5.27% year to date and 30.88% in the last one year (as of June 20, 2017). As such, DXJ currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.


Deutsche X-trackers MSCI Japan Hedged Equity ETF DBJP


This fund seeks to provide exposure to Japanese equities with a large-cap focus, while hedging away the currency risk.


The fund has AUM of $1.79 billion and charges a fee of 45 basis points a year. From a sector look, Consumer Cyclical, Industrials and Information Technology are the top three allocations of the fund, with 19%, 19% and 13% exposure, respectively. Toyota Motor Corp, Mitsubishi UFJ Financial Group and Softbank Group Corp are the top three holdings of the fund, with 4.08%, 2.35% and 2.06% exposure, respectively (as of June 20, 2017). It has returned 6.80% year to date and 26.92% in the last one year (as of June 20, 2017). As such, DBJP currently has a Zacks ETF Rank #3 with a Medium risk outlook.


iShares Currency Hedged MSCI Japan ETF HEWJ


This fund is the currency hedged equivalent of EWJ. It seeks to provide exposure to Japanese equities with a large-cap focus, while hedging away the fluctuations between the USD and JPY.


The fund has AUM of $1.12 billion and charges a fee of 49 basis points a year. From a sector look, Industrials, Consumer Discretionary and Financials are the top three allocations of the fund, with 19.96%, 19.52% and 13% exposure, respectively (as of June 19, 2017). Toyota Motor Corp, Mitsubishi UFJ Financial Group and Softbank Group Corp are the top three holdings of EWJ, with 4.16%, 2.41% and 2.1% exposure, respectively (as of June 19, 2017). It has returned 6.91% year to date and 24.61% in the last one year (as of June 20, 2017). As such, HEWJ currently has a Zacks ETF Rank #3 with a Medium risk outlook.


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