What’s Next For Stalling Japan ETFs

japanese GDP growthDavid Fabian:  The Japanese economy got off to a roaring start through the first half of 2013 and then subsequently stalled due to concerns about the effectiveness of the governments quantitative easing efforts.   Prime Minister Shinzo Abe has been on a quest to inflate the Japanese economy through aggressive strategies to reverse decades of stagflation.  However, the resulting inflationary effects have raised consumer prices and hampered confidence in Japanese stocks.

A quick check on the iShares MSCI Japan ETF (NYSEARCA:EWJ) shows that the fund has been mired in a broad sideways trading range since hitting a high in May.  This index represents over 300 Japanese stocks that have struggled to match the growth of the US market over the last six months.

Investors have made big bets on Japan this year as Index Universe reports both EWJ and the WisdomTree Japan Hedged Equity ETF (NYSEARCA:DXJ) in the top five for year-to-date inflows.  Combined these two ETFs have garnered over $14 billion in new assets in 2013.

This WisdomTree fund differentiates itself from the widely held iShares Japan ETF (NYSEARCA:EWJ) by carrying an additional currency component that hedges its exposure to the Japanese yen.  Put simply, DXJ will outperform EWJ when the yen is falling in value vs. rival foreign currencies.

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