iShares MSCI Japan ETF Lags Hedged WisdomTree Fund by 18.5% Annual Return
iShares MSCI Japan returned 27.41% over one year versus DXJ’s 45.92%, and lagged 40.47% to 206.1% over five years. Unhedged yen exposure at USD/JPY 157.76 eroded EWJ’s returns compared with DXJ’s currency-hedged structure.
1. Performance Comparison
Over the past year, iShares MSCI Japan rose 27.41% while the hedged WisdomTree Japan Hedged Equity fund climbed 45.92%. The divergence widens over five years, with unhedged EWJ at 40.47% versus DXJ’s 206.1%, highlighting the impact of currency moves on equity returns.
2. Hedge Advantage & Currency Impact
DXJ’s currency hedge neutralizes yen depreciation by fixing the exchange rate when translating yen-denominated equity gains into dollars. With USD/JPY around 157.76, unhedged investors have seen returns eroded by roughly 18.5 percentage points over one year relative to DXJ holders.
3. Governance Reforms & Policy Support
Japanese governance reforms are pushing companies to deploy large cash reserves through dividends and buybacks, boosting equity performance. Prime Minister Sanae Takaichi’s ‘Sanaenomics’ agenda targeting AI, semiconductors, energy and defense spending further underpins export-driven sectors prevalent in both ETFs.
4. Risks and Tradeoffs
The hedge exposes DXJ to underperformance if the yen strengthens, as seen after an unexpected Bank of Japan rate hike in August 2024 triggered $400 million in outflows. DXJ also carries concentration in industrials and financials with a modest 2.1% yield and a 0.48% expense ratio.