|iShares Launches £-Hedged MSCI Japan ETF|
|August 02, 2012 11:13 (CET)|
ETF issuer iShares has launched a sterling-hedged version of its popular MSCI Japan tracker fund.
The new fund, the iShares MSCI Japan Monthly GBP Hedged ETF (LSE: IJPH), follows an index from MSCI that incorporates the effect of currency hedging from yen to sterling, using monthly forward foreign exchange contracts, as well as deducting 7% from the gross dividends paid out by Japanese companies to reflect local withholding taxes.
Although Japan has been amongst the poorest-performing major equity markets in recent years, sterling-based investors in Japanese shares have at least benefited from the strength of the yen, which has doubled in value against the pound over the last five years. However, should such yen strength reverse, currency-hedged funds allow foreign investors in Japanese assets to protect themselves.
According to Stephen Cohen, head of the iShares’ EMEA investment strategies and insights team, “Investors are increasingly looking to international markets to diversify portfolios and generate returns, but there is a risk that currency rates can move against them. Through this fund, investors can take a new look at Japan, with the knowledge they will receive flexible, cost-efficient and transparent exposure to Japanese equities with in-built protection against currency movements.”
iShares says it will use State Street, the ETF’s custodian, to perform currency hedging for the fund’s investments.
IJPH, which uses physical replication, will charge 0.64% in annual expenses. The fund reinvests its income and iShares has not published a figure for the estimated annual yield after currency hedging. However, iShares’ unhedged MSCI Japan tracker, IJPN, which distributes its income, has a current yield of 1.87% per annum. IJPN is also slightly cheaper than IJPH in terms of annual expenses, charging 0.59%.
iShares listed a euro-hedged version of its MSCI Japan ETF in 2010. That fund, IJPE, has since gained US$430 million in assets. The unhedged IJPN has US$1.9 billion under management.
iShares’ new sterling-hedged MSCI Japan tracker competes directly against an equivalent fund from db x-trackers, which is listed on the London Stock Exchange under ticker symbol XMJG and has £312 million in assets. The db x-trackers fund uses synthetic (derivatives-based) replication to track its index, however.