The Tokyo Olympics will begin on July 23. Japan is the host nation for the events, which will be held after a one-year delay due to the pandemic.
When the Olympics' host country is initially announced, that country's stock market typically gets a boost in return. After all, parts of the country get significant infrastructure investment. The results for the actual year of the Games might, however, be more mixed.
For instance, recent research led by Patricia Dechow of the USC Marshall School of Business in Los Angeles, California, has looked at stocks in China and the UK around the time of their hosting of the Olympics.
Her findings point out that the Olympic "euphoria" was "sufficient in both China and the UK to influence stock returns and valuations, but the overall fundamental benefits of the Olympics [were] small."
Meanwhile, JP Morgan suggests Japanese equities may be ready to deliver strong returns irrespective of the Olympic Games. In 2021, the Nikkei 225 index is up close to 6% and hit a multi-year high in February; in fact, the index saw its highest level since 1991.
Therefore, today we introduce two exchange-traded funds (ETFs) that could appeal to readers who are bullish on Japanese equities in the coming weeks.
1. WisdomTree Japan Hedged Equity Fund
Current Price: $62.47
52-Week Range: $44.63 - $62.58
Dividend Yield: 2.21%
Expense Ratio: 0.48% per year
The WisdomTree Japan Hedged Equity Fund (NYSE:DXJ) gives access to a range of dividend-paying Japanese stocks while hedging exposure to fluctuations between the Japanese yen (covered here) and the US dollar. The ETF hedges against depreciation in the yen.
DXJ, which has 400 holdings, tracks the WisdomTree Japan Hedged Equity Index. The fund began trading in June 2006 and has close to $1.67 billion under management.
In terms of sectors, industrials have the highest weighting with 19.59%. Next in line are consumer discretionaries (17.56%), financial (15.81%) and information technology, (13.82%) among others.
More than 32% of the funds are in the top 10 stocks. Toyota (NYSE:TM), Takeda (NYSE:TAK), Japan Tobacco (OTC:JAPAF) and Nintendo (OTC:NTDOY) are among the leading names in the fund.
Since the start of the year, the ETF is up about 14.5% and hit a record high in recent days. Interested investors could regard a decline toward $60 as a better entry point into DXJ.
2. WisdomTree Japan SmallCap Dividend Fund
Current Price: $76.05
52-Week Range: $61.92 - $80.40
Dividend Yield: 2.48%
Expense Ratio: 0.58% per year
The WisdomTree Japan SmallCap Dividend Fund (NYSE:DFJ) provides exposure to dividend-paying small-cap companies in the Japanese equity market. Companies are selected initially by removing the 300 largest Japanese companies by market capitalization and weighing the rest based on their annual cash dividends paid.
The fund, which tracks the WisdomTree Japan SmallCap Dividend Index, started trading in June 2006. It currently has 693 stocks.
The top 10 holdings comprise around 7% of total net assets, which is currently more than $211.7 million. Among the top names are Seven Bank (OTC:SVNBY), parts and machine tools manufacturer, JTEKT (OTC:JTEKY), transportation conglomerate, Nippon Yusen Kabushiki Kaisha (OTC:NPNYY) and trading giant, Sojitz (T:2768), whose segments include machinery, energy, metals, chemicals and consumer lifestyle.
As far as sector allocations are concerned, industrials lead with 26.39%, followed by consumer discretionary (16.71%), materials (14.49%), IT (11.13%) and financials (11.11%).
DFJ has returned close to 5% year-to-date. The fund offers relatively stable dividend payments as well as the possibility to benefit from growth prospects in Japanese small caps. Long-term investors should look to buy the dips, especially if there is a decline below $70.