Play the Japan Rally With These ETFs
Investors have bought into the notion that newly elected Prime Minister Shinzo Abe could actually prove successful in weakening the yen.
Editor's Note: This content was originally published on Benzinga.com by The ETF Professor, Benzinga Staff Writer.
The Nikkei 225 (INDEXNIKKEI:NI225), Japan's benchmark equity index, has surged almost 9% in the past month as investors have bought into the notion that newly elected Prime Minister Shinzo Abe could actually prove successful in weakening the yen.
The yen, already on pace to be the worst-performing developed market currency in the world this year, is hovering near 21-month lows against the dollar and multi-month lows against the euro, Australian dollar, and other major currencies as Abe continues to sharpen his currency-weakening rhetoric. A cornerstone of his campaign, Abe has demanded that the Bank of Japan engage in unlimited monetary easing and target inflation of 2%, which is double the central bank's current goal.
Showing he is not one to pull any punches, Abe has said that if BoJ does not get in line with his easing and inflation demands, he will work to revoke a Japanese law guaranteeing the central bank's independence. Abe has also threatened to remove BoJ governors that do not see things his way.
The headlines are a welcome respite from nearly two decades of spiraling equity prices, deflation, rising deficits, and assorted other black marks that have plagued Japan, the world's third-largest economy. Since its debut in April 1996, the iShares MSCI Japan Index Fund (NYSEARCA:EWJ) has lost almost 41%, painting the picture of just how perilous investing in Japan has been.
With that type of savage decline in mind, it is understandable that some investors will take a "show me" attitude when it comes to Japan. It is logical to ask how and why things will be different under Abe this time around (this is his second go round as Japan's prime minister). Assuming Abe is successful in restoring lost glory to Japan's economy, these are the ETFs with which to play that theme.
Precidian MAXIS Nikkei 225 Index ETF (NYSEARCA:NKY): Most ETF industry observers would say it is hard for a firm to be successful with just one fund on the market, but the MAXIS Nikkei 225 Index ETF has proven to be a success for Precidian as the fund just crossed the $200 million in assets under management mark.
NKY is an easy to comprehend ETF. What this fund amounts to is a tracking ETF for the Nikkei 225. That means with a 24.4% weight to industrial firms and a 15.4% allocation to technology companies, NKY is heavily exposed to Japanese exporters. Should Abe's yen-weakening efforts prove fruitful, NKY will be one of the more desirable destinations among Japan ETFs.
Investors should note that NKY is not perfect in terms of tracking the Nikkei 225. For example, since Abe won on December 16, the Nikkei 225 is up about 4.1% while NKY has added about 2.5%. On the other hand, it is worth noting that NKY has gained 11.3% in the past year compared to an 8.5% jump for EWJ.
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