Todd Rosenbluth, head of research specializing in ETFs at VettaFi, a data, analytics and digital distribution company, New York City. VettaFi.com
Warren Buffett is bullish on Japan. In the past few months, his company, Berkshire Hathaway, boosted its investment in five major Japanese trading companies, a stake worth more than $6 billion. Should you jump in? Investors have plenty to like about the world’s third-largest economy, which has stagnated for decades. There is optimism about Japan’s corporate governance reforms and signs that wages are on the rise. The Nikkei 225 Stock Average hit its highest level in 33 years but remains historically undervalued with an average price-to-earnings ratio of about 14 versus 19 for the S&P 500 index. What to know now…
You may already have adequate exposure in your portfolio. A broad international index such as the MSCI EAFE keeps nearly one-quarter of its assets in Japanese stocks.
Consider hedging currency risk. Foreign-currency fluctuations can enhance or reduce returns from foreign investments. If you don’t want to make that call, hedging can neutralize exposure to fluctuations of the yen’s movements relative to those of the dollar.
Buy a low-cost diversified ETF that gives you exposure to hundreds of top Japanese companies. Consider…
iShares MSCI Japan Index ETF (EWJ), which provides unhedged exposure to about 240 large- and mid-cap companies with heavy concentrations among industrial manufacturers, large automakers and consumer-electronics firms. 10-year performance: 4.41%.*
WisdomTree Japan Hedged Equity ETF (DXJ), which holds 430+ stocks and hedges yen exposure by holding currency futures contracts. It emphasizes industrial manufacturers and global exporters. 10-year performance: 9.41%.
*Performance figures are 10-year annualized returns as of July 17, 2023.