The Franklin FTSE Japan Hedged ETF (FLJH) tracks an index of large and mid-size companies in Japan. It is distinct from other Japanese equity ETFs in that it hedges out the currency exposure that an investment in international stocks brings. This delivers isolated exposure to the performance of the underlying equities in local prices. Currency fluctuations can be a significant driver of gains and losses, and some investors may prefer the potential diversification benefit of exposure to non-U.S. dollar investments.

The Franklin FTSE Japan Hedged ETF (FLJH) tracks an index of large and mid-size companies in Japan. It is distinct from other Japanese equity ETFs in that it hedges out the currency exposure that an investment in international stocks brings. This delivers isolated exposure to the performance of the underlying equities in local prices. Currency fluctuations can be a significant driver of gains and losses, and some investors may prefer the potential diversification benefit of exposure to non-U.S. dollar investments.

FLJH offers hedged international stock exposure at a reasonable price but it still trails the iShares Currency Hedged MSCI Japan ETF (HEWJ) in assets and liquidity. FLJH provides broadly similar sector exposure, with a deeper portfolio of mid cap stocks. Investors who expect the U.S. dollar to appreciate relative to the yen might prefer this fund to bet on the performance of Japanese stocks. FLJH should outperform the unhedged iShares MSCI Japan ETF (EWJ) when the U.S. currency strengthens. Those expecting the dollar to lose value relative to the yen will probably prefer to leave currency exposure unhedged, utilizing a fund such as EWJ instead. Those investors without a strong view in either direction might use a mix of both hedged and unhedged Japanese equity ETFs (e.g., 50% EWJ and 50% FLJH).

The fund is part of a series of single-country ETFs that Franklin Templeton began rolling out in 2017. The funds debuted with significantly lower management fees than rival iShares funds, which have long dominated the single-country ETF space. Many of the stocks in the fund’s portfolio are likely to be found in diversified international ETFs, and investors should be careful not to take on an unintentional overweight. Single-country funds are typically not appropriate for investors seeking a diversified portfolio and are more appealing to short-term traders placing tactical bets on specific markets.