Year-to-date, the WisdomTree Japan Hedged Equity Fund (DXJ ) is beating the S&P 500 by nearly 300 basis points, as of September 30. That’s an impressive feat when considering the U.S. dollar is in the midst of a lengthy slumber. Clearly, that’s not hampering the performance of the famed Japan ETF.
Outperformance is old hat for DXJ. For the five years ending September 30, the WisdomTree ETF beat the unhedged MSCI Japan Index by a margin of roughly 5-to-1 while providing slightly better-than-double the returns of the S&P 500. Those are historical data points, but for investors wondering if DXJ can deliver more upside in the fourth quarter and into 2026, the good news is that possibility certainly exists.
In a recent report, BlackRock proclaimed Japan as one of its preferred destinations for investors, noting the Bank of Japan (BOJ) is inching toward monetary policy normalization and is accomplishing that objective without roiling global markets. That’s positive for DXJ, as is the fact that there are other factors bolstering the Japan investment thesis.
DXJ Has Appeal
Not to be overlooked in the DXJ discussion are the positive effects of Japan’s corporate governance initiatives and the globalization of AI. The latter point is relevant because DXJ allocates more than 10% of its portfolio to technology stocks.
“Japan’s corporate governance reforms are translating into tangible shareholder gains: improved performance and rising share buybacks,” observed BlackRock. “We stay overweight Japanese equities. Recent AI investment developments also reinforce why a mega force lens is key for spotting return opportunities.”
Corporate governance reforms are paying dividends in other ways, including encouraging foreign investors to revisit Japan equities. In fact, those investors now own significantly more equity in Japan’s companies than the corporations themselves. Plus, shareholder rewards are taking off, further adding to the case for ETFs like DXJ.
“Share buybacks — one of the earliest and clearest signs of reform momentum taking root — have surged as companies respond to rules pushing them to return cash rather than hoard it,” added BlackRock. “In the first eight months of this year, buybacks already nearly equal last year’s total — which itself was more than double the highest annual level in the decade before 2023, according to corporate data compiled by Nomura.”
As BlackRock pointed out, Japan’s return on equity — an important quality metric — is near its best levels in 40 years. So it can be argued that, with DXJ, investors are getting a quality ETF levered to monetary and company-specific policies that could drive further upside in Japan’s risk assets.
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