Amundi ETF offers access to Japan’s Topix with inbuilt euro/yen hedge

Oct 29th, 2012 | By | Category: Equities

Amundi ETF has announced the launch of the Amundi ETF Topix EUR Hedged Daily (TPXH), a fund designed for euro-based investors seeking exposure to the Japanese equity market, but who are concerned about the impact of currency risk.

Amundi ETF offers access to Japan’s Topix with inbuilt euro/yen hedge

The newly launched Amundi ETF offers a solution to investors concerned about fluctuations in the euro/yen exchange rate.

The new fund, which is referenced to the Topix Total Return Euro Daily Hedged Index, offers investors access to Japan’s Topix equity index with an inbuilt hedge of the euro/yen exchange rate.

The Topix, which is the common name for the Tokyo Stock Price Index, is a free-float-adjusted market capitalisation-weighted index that tracks all domestic common stocks listed on the First Section of the Tokyo Stock Exchange (TSE).

The index has about 1,700 constituents and is widely seen as a key barometer of the Japanese stock market.

The index has a significant cyclical bias, reflecting Japan’s export-oriented economy, with consumer discretionary and industrial companies comprising 25.93% and 21.62% respectively. These sectors are followed by financials with 17.4%, consumer staples with 13.96% and communications with 6.75%.

The index’s top five constituents are Toyota Motor Corp with 3.92%, Mitsubishi UFJ Financial Group with 2.71%, Honda Motor Co with 2.00%, Sumitomo Mitsui Financial Group with 1.80%, and Nippon Telegraph & Telephone with 1.75%.

Of course, there are a whole host of ETFs offering exposure to Japanese equities. Simply tracking the Topix, though useful, is nothing out of the ordinary. What makes this fund stand out is the in-built currency hedge, which reduces the impact of fluctuations in the euro/yen exchange rate. And with many market strategists anticipating a weakening of the yen versus the euro, the fund could help protect investors against currency loses which would otherwise offset potential gains from holding Japanese equities.

The hedge is effected using rolling one-month forward contracts. However, investors should note that while the index is 100% hedged and adjusted daily, the index does not assume a perfect hedging of currency movements since only beginning-of-period balances are hedged, meaning some currency moves will transmit through to net performance.

Valérie Baudson, Managing Director of Amundi ETF, said: “Following the success of our ETF launched in 2011 tracking the S&P 500 EUR Daily Hedged strategy index, we wanted to offer investors the same innovative currency hedging solution but this time on the Topix, the main Japanese equity market index”.

The fund, which is synthetically replicated, has been listed on the NYSE Euronext in Paris and has a Total Expense Ratio (TER) of 0.48%.

Amundi has priced the product competitively, undercutting its rivals. For example, at 0.48% the fund is a cheaper than the RBS Market Access Topix EUR Hedged Index ETF (M9SW), which is listed on the Euronext Amsterdam, Deutsche Börse and Borsa Italiana and charges 0.50%; the db x-trackers MSCI Japan EUR Hedged TRN Index ETF (XMK9), which is listed on the Deutsche Börse and Borsa Italiana and charges 0.60%; and the iShares MSCI Japan Monthly EUR Hedged ETF (IJPE), which is listed on the London Stock Exchange and charges 0.64%.

Hedging the euro/yen rate will clearly make the fund appealing to European investors.  For UK-based investors looking for a similar such fund hedging the yen/sterling exchange rate, they could consider the iShares MSCI Japan Monthly GBP Hedged ETF (IJPH) or the db x-trackers MSCI Japan GBP Hedged TRN Index ETF (XMJG), which charge 0.64% and 0.60%, respectively, and are listed on the London Stock Exchange.

Similarly, US-based investors could consider the NYSE Arca-listed db-X MSCI Japan Currency-Hedged Equity ETF (DBJP), which hedges the yen versus the US dollar and comes with a gross expense ratio of 1.03%.

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