Japan GDP Growth Falls Short Of Expectations: ETFs In Focus

Japan’s Gross Domestic Product grew an annualized 1% in the first quarter of 2017 compared with previous estimates of 2.2%, according to data released by the Cabinet Office. The lower-than-expected growth is being attributed to a fall in oil inventory and lackluster household spending.

Though private consumption grew 0.3%, compared with a preliminary reading of 0.4%, business spending rose 0.6% compared with a preliminary reading of 0.2%. Moreover, Japan’s machinery orders declined 3.1% in April 2017.

The growth figure could be a cause for concern for the country’s central bank, Bank of Japan, as it is expected to adopt a neutral stance in the next interest rate review on June 15-16 2017, per Reuters. However, despite the lower growth in GDP, Japan is undergoing its longest growth streak in over a decade, with five consecutive quarters of economic expansion.

The market is predicting that in order to continue its growth streak, the economy has to divide focus among factors that are contributing to growth. Specifically, in order to reduce reliance on exports, focus should be on domestic demand (read: Japan Hedged ETFs Downgraded to Hold on Strong Yen).

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 $8.40 billion and charges a fee of 48 basis points a year. From a sector look, Consumer Discretionary, Industrials, and Information Technology are the top three allocations of the fund, with 23.31%, 22.59% and 14.23% exposure, respectively (as of June 9, 2017). Mitsubishi UFJ Financial Group, Toyota Motor Corp, and Sumitomo Mitsui Financial Group are the top three holdings of the fund, with 4.74%, 4.39% and 3.69% exposure respectively (as of June 9, 2017). It has returned 4.45% year to date and 30.11% in the last one year (as of June 9, 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 $1.80 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 14% exposure, respectively. Toyota Motor Corp, Mitsubishi UFJ Financial Group, and Softbank Group Corp are the top three holdings of the fund, with 4.14%, 2.37% and 1.99% exposure, respectively (as of June 8, 2017). It has returned 5% year to date and 25.19% in the last one year (as of June 9, 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 $1.09 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 20.11%, 19.88% and 13.17% exposure, respectively (as of June 8, 2017). Toyota Motor Corp, Mitsubishi UFJ Financial Group, and Softbank Group Corp are the top three holdings of EWJ, with 4.21%, 2.43% and 2.03% exposure, respectively (as of June 8, 2017). It has returned 5.18% year to date and 25.36% in the last one year (as of June 9, 2017). As such, HEWJ currently has a Zacks ETF Rank #3 with a Medium risk outlook.

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