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Well, Japan is unique in equity markets in that the stock market there historically has
been negatively correlated to the currency market. And so what we've seen since November
of 2012 is a gradually depreciating yen. And that's coincided with a rally in the Japanese
stock market. There is a new prime minister who took over in Japan in the fall and he's
targeting in Japan a higher inflation rate-- and frankly a weaker yen relative to the dollar.
He's been able to appoint allies of his to the bank of Japan to implement his policy.
And the market is moved on the expectation of a weaker yen and potentially higher inflation
going forward. So that's certainly part of the story. The other part is that many investors,
including institutional investors, have been underweight in over the last ten years.
And you need to understand that Japan is about 7.5% of the global equity market. It's about
14% of the equity market outside of the United States and about 22% of the developed world's
equity market. So as money flows back into Japan to get a market weight or a market exposure,
that creates momentum of its own.
And this year-- year to date in the E.T.F. industry, now we've seen about $50 billion
of inflows into the E.T.F. industry through the end of the first quarter in 2013. And
about $5 billion of-- dollars of that has gone into Japanese E.T.F.'s, about 10%. And
about 7% has actually gone into WisdomTree's Japanese E.T.F., which hedges out the impact
of the Japanese currency.
Well, you wanna hedge it if you are afraid that the yen's gonna depreciate going forward.
So the yen's depreciated about 10% thus far in 2013, that has an impact on U.S. investors.
If you own Japanese stocks but you're unhedged, the depreciating yen will impact your returns.
So what WisdomTree tries to do is hedge out the impact of the currency movement within
the portfolio so that you get the benefit of the Japanese stock appreciation without
the penalty of the depreciating yen.
Well, you wanna be broadly diversified in a Japanese portfolio to take advantage of
what's happening in a broad equity market. WisdomTree tries to do that in its fund, but
we look at dissectors and say, "We don't wanna own companies that are getting more than 80%
of their revenues from inside Japan. So in our particular portfolio, we're a little bit
underweight utilities and telecom.
And we have more of the weight tilted towards the exporters, towards firms that could potentially
take advantage of a weakening yen around the world in terms of gaining market share and
hopefully translating that into higher revenue growth rates and per-- potentially higher
profit growth rates.