Monday, November 3, 2014


Wednesday’s FOMC press release may have brought the much anticipated ending of QE3 and a lot of debate about the exclusion of the word “significant” but Japan stole the show on Friday.

Japan decided to expand the total amount of quantitative easing in 2015 to around 15% of GDP (while lengthening duration) plus the Government Pension Investment Fund finally decided to shift its asset mix to a more equity heavy posture which FT calculates could result in nearly $200 billion being reinvested in domestic and foreign equities.

So it was no shocker that Japanese equities knocked the cover off the ball with the iShares Japan (EWJ) ETF up 4.96% on Friday and back into the black at .03% YTD.  While more than a few prognosticators on Monday will tell you that the easy money has already been made, given the positive correlation between equity returns and quantitative easing, the ETFG Scanner can help you find the right ETF for those who want to help themselves.

Start by clicking on the filter and setting Category/Currency/Japanese Yen to find all of the ETF’s offering straight Yen exposure.  As you can imagine, QE hasn't been kind to the Yen now down over 6% in 2014, and back to levels last seen in the second half of 2008.  While FXY might be oversold after Friday with a weekly RSI (14) score back to 26.21, it has been trapped beneath its 50 week moving average since 2013 and those Friday press releases won’t be adding any lift to the Yen anytime soon.  But after years of little investor interest, only 4 funds targeting currency exposure are currently marketed.

For equity investors, reset the filters for geographic region and checking “Developed Markets” and “Asia-Pacific.”  If you sort the list based on our Quant filters, you’ll find some of the strongest performers as Friday’s rally boosted their momentum scores.  #2 on the list is the WisdomTree Japan Hedged SmallCap Equity Fund (DXJS) which besides having nearly 25% of its equity exposure in small-cap industrials that in theory should benefit the most from a weakened Yen offers hedged exposure to prevent further declines in the Yen from hitting your portfolio statement too hard.  If you think the currency doesn't matter, compare DXJS to its non-hedged equivalent the WisdomTree Japan SmallCap Dividend Fund (DFJ) up 1.78% YTD after Friday compared to 7.78% for DXJS.

Thank you for reading ETFG Perspectives.

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