Japan ETFs Battle For Inflows: EWJ vs. DXJ

by on April 11, 2013 | ETFs Mentioned:

Interest in foreign equity ETFs has been on the rise as more and more investors have come around to embrace the ease-of-use and cost-efficiency benefits offered through the exchange-traded product wrapper. Japan ETFs in particular have come under the spotlight for countless investors looking to geographically diversify their portfolio’s equity component. While some have embraced adding exposure to one of the largest economies in the world, others have been hesitant to dip their toes in, given the nation’s unfavorable demographic trends and lackluster growth prospects  [Download 101 ETF Lessons Every Financial Advisor Should Learn].

While there have been plenty of new entrants to the Japan Equities ETFdb Category over the years, two funds remain safely atop the list: the iShares MSCI Japan Index Fund (EWJ, A) and the WisdomTree Japan Hedged Equity Fund (DXJ, B-).

Meet the Competitors

With a dozen Japan ETFs to choose from, EWJ and DXJ separate themselves by being the biggest funds in the space, boasting over $7 billion and $5 billion in total assets, respectively, under management. Although these products are seemingly identical, as each one tracks a basket of Japanese stocks, the difference in methodology has resulted in a surprising pattern of inflows [try our Free ETF Head-To-Head Comparison Tool].

The Bottom Line

The chart above reveals that EWJ and DXJ have been struggling to garner assets in recent years as uncertain growth prospects for much of the developed world have prompted many to seek out more lucrative opportunities in emerging markets. Despite its commanding lead in 2011, EWJ has been dwarfed by DXJ in recent months; investors have been piling into WisdomTree’s fund because it offers U.S. dollar currency-hedged exposure, which has proven to be absolutely critical given the yen’s extraordinary devaluation in the currency market [see How To Invest Overseas Without Currency Risk]. 

Nonetheless, EWJ could still be the right choice for those looking to diversify away from the U.S. dollar in anticipation that the greenback will soon reverse its steep uptrend. 

Follow me on Twitter @SBojinov

[For more ETF analysis, make sure to sign up for our free ETF newsletter]

Disclosure: No positions at time of writing.