Yen or out? Why Japan ETF can boost portfolios

Yen or out? Why Japan ETF can boost portfolios

Yen or out? Why Japan ETF can boost portfolios

Japanese equities can act as the perfect complement to Canadian companies in an investor’s portfolio.

Jeff Weniger, asset allocation strategist at WisdomTree Canada, believes opposites attract and that the WisdomTree Japan Equity Index ETF can provide ideal exposure to the country’s globally orientated firms.

The ETF is available in hedged (JAPN) and non-hedged (JAPN.B) classes and was this month listed on the TSX. JAPN tracks the WisdomTree Japan Equity Index, which is made up of dividend-paying firms incorporated in Japan and traded on the Tokyo Stock Exchange.

Weniger said: “Despite the country’s $4.7 trillion market capitalization, more than three times Canada’s $1.8 trillion value, Japan is sometimes neglected at the portfolio level. The country is a natural diversifier for all investors, but even more so for Canadians specifically.

“JAPN can be used strategically, and in large scale, as a dominating holding for TSX-centric investors.”

Weniger explained that arguably no two countries are as different as Canada and Japan. While the latter looks outwards for natural resources, Canadian fuel is more than one-quarter of its merchandise exports. Japan has virtually no oil and gas, while MSCI Canada is more than 20% energy.

“Other contrasts persist,” he said. “Japan is a leader in high-tech manufacturing efficiency. It will close 2018 with 44,000 industrial robots, about 10 times Canada’s 4,500.  WisdomTree’s Japan Index has more than a third of its exposure in industrials and information technology, but those sectors are only an eighth of MSCI Canada.

“Canada is the oil long, Japan the short. Canada is short tech and robotics, Japan is long. One sells umbrellas, the other sells sunscreen. They neutralize each other.”

Weniger highlighted another benefit that he believes potentially tops all others – the yen’s tendency to rally in risk-averse times while the Canadian dollar falls. He said this presents investors with opportunity in the unhedged ETF (JAPN.B).

He said: “’Carry trade’ investors borrow in low-yielding currencies such as the Japanese yen, investing elsewhere at a higher interest rate. When risk enters the picture, those trades are reversed.”


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