Buffett Loves Japan. Should You?

• (0:50) - What Should Investors Know About Japan's New Prime Minister And Their Policies
• (6:25) - What Is Currently Driving Japan’s Equity Rally?
• (13:00) - ETFs Investors Should Consider When Looking For Exposure In Japan
• (16:40) - What Other interests Should Investors Be Aware of When Investing In Japan
• (19:25) - Episode Roundup: DXJ, OPPJ, EWJ, FLJP, FLJH
•                 [email protected]

In this episode of ETF Spotlight, I speak with Jeremy Schwartz, Global Chief Investment Officer at WisdomTree Asset Management, about investing in Japan ETFs that have significantly outperformed the S&P 500 this year.

Japanese stocks surged last month after Sanae Takaichi became Japan’s first female Prime Minister. Takaichi is known as a protégé of former Prime Minister Shinzo Abe and a supporter of “Abenomics.”

Investors hope Takaichi will introduce aggressive fiscal spending, including increased defense spending and tax cuts to support economic growth. She has also pledged to boost investment in high-growth areas such as AI and semiconductors.

Overall, her policies appear supportive of Japanese equities. The yen, however, fell to a nine-month low recently as traders believe Takaichi prefers a looser monetary policy and may pressure the BOJ to postpone rate hikes.

Japan’s stock market was already performing well even before the election. Improved corporate governance and more shareholder-friendly policies have attracted global investors back into Japan.

Concerns about a potential bubble in NVIDIA NVDA and other AI beneficiaries have also drawn some investors to Japan. Japanese market valuations look very reasonable relative to those in the United States.

Warren Buffett’s endorsement has also helped Japanese equities. The Oracle of Omaha started investing in five Japanese trading houses in 2019 and has even compared their diversified business models to Berkshire Hathaway BRK.B itself.

Buffett has continued to increase his stake while effectively hedging the currency risk. The value of his positions topped $30 billion recently, according to CNBC. Earlier this year, he told shareholders that Berkshire will hold onto these investments for “50 years or forever.”

The WisdomTree Japan Hedged Equity Fund DXJ holds dividend-paying exporters like Toyota TM and hedges currency fluctuations, reducing the impact of yen movements on returns.

The WisdomTree Japan Opportunities Fund OPPJ assigns 45% of its weight to the "Buffett basket," which comprises his original investment in the five Japanese trading houses, and incorporates a dynamic currency hedge.

What are the biggest risks to Japanese stocks that investors should be aware of?Tune in to the podcast to learn more.

Be sure to look out for the next edition of ETF Spotlight, and remember to subscribe! If you have any comments or questions, please email [email protected]

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This article originally published on Zacks Investment Research (zacks.com).

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