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Japan-Focused ‘DFJ’ ETF an Alternative to China

This article was originally published on ETFTrends.com.

As U.S. equities have recently been the land of rising volatility, it could be investors flocking towards the land of the rising sun via Japan-focused exchange-traded funds like the WisdomTree Japan SmallCap Dividend UCITS ETF (DFJ) .

As the threat of trade wars permeate the capital markets, volatility rained down on U.S. equities and saw the Dow Jones Industrial Average fall as much as 600 points before settling for a 473-point drubbing at the close of Tuesday’s trading session. It was the Dow’s worst loss since January 3 as the wall of worry got taller over U.S.-China trade talks deteriorating.

U.S. President Donald Trump threatened to impose a higher an increase in existing tariffs on Chinese goods on Friday with the hope that it will force China’s hand in relenting to a trade deal. Various reports reveal that China has been waffling on its negotiations with the U.S., which caught the ire of President Trump, causing him to send tweets that roiled the markets.

With China equities in a funk, investors can look to opportunities elsewhere, such as DFJ. The fund is up 5.60 percent thus far year-to-date.

Rafi Aviav, WisdomTree Head of Product Development in Europe, said, “The WisdomTree Japan SmallCap Dividend UCITS ETF taps into the Japanese domestic economy while offering exposure to the size and value factors, which have been the clear winners from a factor perspective in Japan in the past decade[3]. The index has a live track record of more than 10 years, through which it has outperformed its small-cap benchmark by 1.7% per annum and its large-cap benchmark by 3.4% per annum, while maintaining low correlations (around 0.5[6]) with European and US markets, true to its domestic focus.  We believe this fund offers a unique way to access Japanese small-caps and it is particularly relevant in these times, when global free trade may be challenged.”

Japan's economy is seeing record employment rates, and wage growth finally starting to pick up. Additionally, the country maintained an ultra-low crime rate, superb infrastructure and transportation, and well-kept cities.

These positive signs are all feeding into strength for small cap equities in Japan.

Christopher Gannatti, WisdomTree Head of Research in Europe said, “We think Japanese small-caps provide the purest way to tap into the local economic growth prospects. After decades of deflation, deleveraging and demand contraction, Japan’s domestic demand is now driving growth. A structural shortage of labour is forcing improvements in both the quality of employment and the incomes earned from employment and the government are delivering on a policy switch to ‘Fiscal Dominance’ and Japanese small-caps have performed strongly across multiple time horizons in the past ten years, offering differentiation relative to large-caps alone.”

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