HEWJ: Currency-Hedged Exposure To Japan With Positive Carry
iShares Currency Hedged MSCI Japan ETF (HEWJ) is a fund which participates in broad-based Japanese equities while simultaneously hedging its yen versus US dollar exposure. HEWJ offers an SEC and dividend yield of ~4%, also making it considerable for income-focused investors. Japanese equities are witnessing structural improvement, with valuations still being fairly modest. Japanese equities benefit from governance reforms, improving ROEs, and moderate valuations, supporting allocation to Japan. Execution, however, is important and needs to be monitored.
HEWJ: Black Monday Declines Mean Selectivity Is Key
The Nikkei suffered its worst ever one-day slump this morning. There are plenty of technical efforts, and it might have been a perfect storm of slightly negative data that agglomerated together into poor sentiment, but Sahm's Rule looms. We think the primary driver of the declines in Japan, at least to the extent that they can be justified, comes down to the higher unemployment in the US.
HEWJ: The Yen Hedge Is Still Paying Off
The iShares Currency Hedged MSCI Japan ETF has successfully taken advantage of the rise in Japanese indices while avoiding the depreciation of the Yen. The ETF benefits from a weak Yen, particularly in the automotive and industrial sectors, but imported inflation and consumer sentiment are hurting domestic demand. The carry trade is the key activity that is weakening the Yen even further, and it will be difficult to get that trade to unwind. Sustainable Japanese inflation is needed.
