WisdomTree ETFs
JAPAN SECTORS
There has been a great deal of excitement surrounding the economic policies of “Abenomics1” that aim to end
deflation in Japan and restore more positive economic growth. Since the election of prime minister Shinzo Abe
at the end of 2012, billions of dollars have flowed into Japanese equities. Most allocations to Japan have come in
the form of broad-based exposure vehicles, and there have also been increasing allocations to individual stocks.
And in 2013, many broad-based indexes2 delivered compelling returns.
However, as Abenomics continues to gain traction and Abe makes more progress on his growth strategy for
Japan (the “third arrow” of Abenomics), we believe that there will be an ongoing effort to distinguish the stocks
and sectors most primed to benefit from the new government initiatives. While broad-based approaches should
continue to serve many investors well, we believe there is also a place for more finely honed precision tools to
express specific views regarding how Abenomics should play out.
WisdomTree has developed five Japan sector Indexes designed to be primary beta benchmarks3 for the three
Japanese investment themes stemming from Abenomics, which we describe in detail below.
WISDOMTREE’S FIVE JAPAN SECTOR INDEXES
The three themes WisdomTree has identified—and that broadly characterize our new sector Indexes—are reflation,
Abe growth strategy and yen sensitivity.
REFLATION
+ WisdomTree Japan Hedged Financials Index
+ WisdomTree Japan Hedged Real Estate Index
A critical component of Abenomics involves the reflation4 of financial assets. The Bank of Japan (BOJ) itself has
stated its goal to suppress risk premiums5 of owning equities by expanding its balance sheet to purchase exchangetraded funds (ETFs) and make direct investments into real estate investment trusts. The Japanese financial sector
stocks and real estate-related companies are therefore part of a theme many refer to as “Japanese reflation.”
Abenomics: Series of policies enacted after the election of Japanese prime minister Shinzo Abe on December 16, 2012, aimed at
stimulating Japan’s economic growth.
Includes the MSCI Japan Index, MSCI Japan Local Currency Index, WisdomTree Japan Hedged Equity Index, MSCI Japan Small Cap
Index and WisdomTree Japan SmallCap Dividend Index for period 12/31/2012 to 12/31/2013.
3
Beta benchmark: Characterized by measuring the performance of a particular universe of equities without attempting to utilize selection
and weighting to generate differences in performance relative to this universe.
4
Reflation: The term is used to describe the first phase of economic recovery after a period of contraction. This period is typically
characterized by the act of stimulating the economy through accommodative central bank policies and reducing taxes to bring growth
and inflation back up to the long-term trend.
5
Risk premiums: Equity investments are not risk free, but it is thought that investors buy stocks because the returns they expect are high
enough to allow them to assume this risk.
1
2
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WisdomTree ETFs JAPAN SECTORS
ABE GROWTH STRATEGY
+ WisdomTree Japan Hedged Health Care Index
+ WisdomTree Japan Hedged Tech, Media and Telecom Index
Abe has stated that health care is an important sector to contribute to Japan’s economic growth and that he wants
to use it as part of his growth strategy. Technology companies should also receive a boost from new government
initiatives supporting additional capital spending, we believe tech, media and telecom stocks are also poised to be
beneficiaries of Abenomics growth strategies.
YEN SENSITIVITY
+ WisdomTree Japan Hedged Capital Goods Index
The capital goods sector, which—among other industries—includes 30.7% weight in automobile companies and
related suppliers, typically includes some of the most export-oriented stocks. These stocks are often very sensitive
to changing exchange rates—so with the yen at more competitive levels, these stocks could benefit.
FIGURE 1: A DETAILED LOOK AT INDUSTRIES INCLUDED IN WISDOMTREE’S JAPAN SECTOR INDEXES
Theme
Sector
Real
Estate
Industries Included
Real Estate Investment Trusts, Real Estate Management & Development Companies, Homebuilding,
Building Products, Construction & Engineering (building sub-groups), Construction Materials and
Marine Ports & Services
Reflation
Abe
Growth
Strategy
Yen
Sensitivity
Financials
Banks, Insurance, Capital Markets, Diversified Financial Services & Consumer Finance
Tech,
Media &
Telecom
Industries within Information Technology, Media and Telecommunication Services sectors, also including
Wireless Telecommunication Services, Media, Photographic Products, Leisure Products (Video Gaming
Related Companies), Internet and Catalog Retail, Consumer Electronics, and Electronic Components
Health
Care
Biotechnology, Drug Retail, Health Care Equipment and Supplies, Health Care Providers and Services,
Health Care Technology, Life Sciences Tools & Services and Pharmaceuticals
Capital
Goods
Aerospace & Defense, Automobiles, Automobile Components, Building Products, Specialty Chemicals
(paint companies), Electrical Components & Equipment, Heavy Electrical Equipment, Machinery, Steel,
Engineering & R+D Services, Other Building Products
Source: WisdomTree.
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WisdomTree ETFs JAPAN SECTORS
WHY HEDGE THE YEN?
While neither Prime Minister Abe nor the BOJ explicitly states a weakening yen as a goal, yen depreciation has
been a side effect of the policies undertaken so far. Because an unhedged index is exposed to this currency
headwind, we believe a hedged currency approach takes better advantage of the Japanese equity opportunity.
+ Hedging the Yen Allows Pure Play on Equities: Because the yen can often be negatively correlated6 to
equity movements, introducing yen currency risk—whether one wants to express a bullish or bearish view on
sectors—could potentially counteract the equity moves a portfolio is positioned to capture. Consequently,
hedging the yen allows one to focus on the specific equity opportunity regardless of the yen’s movements.
+ BOJ Activities Negative for the Yen: The Bank of Japan itself has stated that the 2% inflation target and
monetary easing program have the potential to weaken the yen’s value. Consider this excerpt from a speech
by deputy governor Kikuo Iwata:
“if people expect prices to go up down the road, the real rates of return7 from cash as well as
deposits and bonds—for which interest rates are fixed—will decline. Holding those assets will
become less attractive than in the past. In light of such developments, market participants with
rising inflation expectations will shift part of their portfolios from cash, deposits, and bonds
including JGBs [Japanese government bonds] to equities (including equity trust funds8), real
estate and homes (including real estate investment trusts such as J-REITs9) or, alternatively, foreigndenominated assets for which returns are higher than those derived from yen-denominated
assets. As a result of this, expectations would be for stock prices to rise, the yen to depreciate,
and foreign currencies to appreciate.”10
Correlation: Statistical measure of how two sets of returns move in relation to each other. Correlation coefficients range from -1 to 1. A
correlation of 1 means the two subjects of analysis move in lockstep with each other. A correlation of -1 means the two subjects of analysis
have moved in exactly opposite directions.
7
Real rate of return: Rate of return that accounts for the impact of inflation. Positive inflation lowers the real rate of return, whereas negative
inflation (or deflation) raises the real rate of return relative to the return level reported that does not account for inflation.
8
Equity trust funds: Investment management companies raise funds by issuing beneficiary certificates and invest them in various types of
financial instruments, in this case equities.
9
J-REITs: Investment structure containing a basket of different exposures to real estate, be it directly in properties or in mortgages traded on
the Tokyo Stock Exchange. Returns predominantly relate to changes in property values and income from rental payments.
10
Kikuo Iwata, “Purpose and Mechanism of Quantitative and Qualitative Monetary Easing,” Bank of Japan, 10/18/13.
6
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WisdomTree ETFs JAPAN SECTORS
JAPAN SECTORS INVESTMENT PROCESS
The WisdomTree Japan sector Indexes use a rules-based process for selecting and weighting securities while
hedging exposure to the yen.
FIGURE 2: INVESTMENT PROCESS FOR WISDOMTREE JAPAN SECTOR INDEXES
Selection Rules
Eligible Universes
Tokyo Stock Exchange
Market Cap Requirement
Minimum float-adjusted market capitalization of US$500 million
Liquidity Requirements
All criteria measured as of Index screening date: 3-month avg. daily volume of at least $100,000;
calculated volume factor (3-mo. avg. daily volume/Weight in Index) greater than $200 million; At least
250,000 shares traded or a notional value of shares traded of $25 million for each of the last 6 months.
Weighting Rules
Weighting
Float-adjusted market capitalization (shares held by control groups, public companies and government
agencies are excluded)
Holding Caps
At Index rebalance dates, individual security weights are capped at 10%. Between annual Index
rebalances, individual security weights may fluctuate above 10% due to market movement. In the case
of the WisdomTree Japan Hedged Financials Index, qualifying constituents that constitute shares of
brokerage or financial firms that derive 15% or more of their revenue from securities-related activities
(referred to as "12 (d) (3) securities") are capped at 4% at the annual rebalance.
Liquidity Adjustment
Factor
In the event a security has a calculated volume factor that is less than $400 million, its weight will be
reduced such that weight after volume adjustment = weight before adjustment x calculated volume
factor/$400 million
Mechanics of the Currency Hedge
Hedged Equity Return =
Local Market Equity Return + Yen Return - Hedged Yen Return
Source: WisdomTree. You cannot invest directly in an index.
SECTOR CHARACTERISTICS
On the following page, we highlight key facets of the exposures for each Japan sector Index to provide insight
into some of the primary factors that might influence how these Indexes perform.
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WisdomTree ETFs JAPAN SECTORS
FIGURE 3: TOP 5 INDUSTRY EXPOSURES AND TOP 10 HOLDINGS [ as of 3/31/16 ]
Japan Financials
Japan Health Care
Japan Real Estate
Japan TMT
Japan Capital Goods
Industry
Weight
Industry
Weight
Industry
Weight
Industry
Weight
Industry
Weight
Banks
53.1%
Pharmaceuticals
64.5%
Real Estate
Management &
Development
37.9%
Electronic Equip.,
Instruments
24.8%
Automobiles
30.7%
Insurance
24.7%
Health Care
Equipment &
Supplies
22.1%
Real Estate
Investment Trusts
31.8%
Wireless
Telecommunication
Services
21.6%
Machinery
27.4%
Diversified Financial
Services
10.2%
Food & Staples
Retailing
5.9%
Construction &
Engineering
13.7%
Technology
Hardware, Storage
& Peripherals
13.5%
Auto Components
17.8%
Capital Markets
8.6%
Health Care
Providers &
Services
5.2%
Household
Durables
8.5%
Household
Durables
11.6%
Electrical
Equipment
8.5%
Consumer Finance
3.5%
Health Care
Technology
1.8%
Building Products
4.1%
Software
5.9%
Metals & Mining
6.0%
Other
0.0%
Other
0.6%
Other
4.0%
Other
22.6%
Other
9.6%
Weight
Company Name
Weight
Company Name
Company Name
Weight
Company Name
Weight
Company Name
Weight
Sumitomo Mitsui
Financial Group
10.1%
Takeda
Pharmaceutical
Co Ltd
8.7%
Mitsubishi Estate Co
8.1%
SoftBank Group
Corp
8.2%
Toyota Motor Corp
9.1%
Mitsubishi UFJ
Financial Group Inc
9.5%
Astellas Pharma Inc
8.7%
Mitsui Fudosan Co
8.1%
KDDI Corp
8.1%
Honda Motor Co
7.7%
Tokio Marine
Holdings Inc
7.6%
Ono Pharmaceutical
Co
7.4%
Daiwa House
Industry Co
5.9%
Canon Inc
5.6%
Fanuc Co
4.6%
Orix Corp
5.2%
Otsuka Holdings
Co Ltd
6.8%
Sumitomo Realty &
Dev Co
4.6%
NTT DOCOMO
5.3%
Bridgestone Corp
3.8%
MS&AD Insurance
Group Holdings, Inc
4.5%
Hoya Corp
5.9%
Daito Trust
Construction Co
3.9%
Sony Corp
5.2%
Mitsubishi Electric
Corp
3.6%
DAI-ICHI LIFE
INSURANCE
4.3%
Eisai Co
5.5%
Sekisui House
3.5%
Murata
Manufacturing Co
Ltd
4.4%
Nissan Motor Co
3.6%
Mizuho Financial
Group Inc
3.7%
Daiichi Sankyo Co
Ltd
5.2%
Nippon Building
Fund Inc JREIT
2.6%
Keyence Corp
4.3%
Fuji Heavy Industries
3.5%
Sompo Japan
Nipponkoa
Holdings Inc
3.5%
Shionogi & Co
4.8%
Taisei Corp
2.6%
Hitachi
4.0%
Daikin Industries
3.5%
Nomura
Holdings Inc
3.4%
Terumo Corp
4.4%
Japan Real Estate
Invest Corp JREIT
2.4%
Panasonic Corp
3.6%
Denso Co
3.2%
Sumitomo Mitsui
Trust Holdings Inc
3.4%
Olympus
Corporation
4.2%
Obayashi Corp
2.4%
Fujifilm Holdings
Corp
3.3%
Nidec Corp
2.9%
Sources: WisdomTree, Standard & Poor’s. Holdings subject to change.
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WisdomTree ETFs JAPAN SECTORS
EXECUTING THE DESIRED EXPOSURES THROUGH WISDOMTREE’S EXCHANGE-TRADED FUNDS (ETFS)
So far, we have discussed the five WisdomTree Japan sector Indexes, but of course it is not possible to invest
directly in indexes. That is why WisdomTree has created five Japan sector ETFs (shown in Figure 4)—each designed
to track a respective Japan sector Index after costs, fees and expenses.
FIGURE 4: WISDOMTREE’S FIVE JAPAN SECTOR ETFS
Fund Name
Ticker Symbol
Expense Ratio
WisdomTree Japan Hedged Financials Fund
DXJF
0.48%
WisdomTree Japan Hedged Real Estate Fund
DXJR
0.48%
WisdomTree Japan Hedged Capital Goods Fund
DXJC
0.48%
WisdomTree Japan Hedged Health Care Fund
DXJH
0.48%
WisdomTree Japan Hedged Tech, Media and Telecom Fund
DXJT
0.48%
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WisdomTree ETFs JAPAN SECTORS
At WisdomTree, we do things differently. We build our ETFs with proprietary methodologies, smart structures and/
or uncommon access to provide investors with the potential for income, performance, diversification and more.
For more information or to invest in the WisdomTree Japan Sectors ETFs, contact your representative or call
866.909.WISE (9473).
Hedging can help returns when a foreign currency depreciates against the U.S. dollar, but can hurt when the foreign currency
appreciates against the U.S. dollar.
Investors should carefully consider the investment objectives, risks, charges and expenses of the Fund before investing.
To obtain a prospectus containing this and other important information, call 866.909.WISE (9473) or visit wisdomtree.com.
Read the prospectus carefully before you invest.
There are risks associated with investing, including possible loss of principal. Foreign investing involves special risks, such as
risk of loss from currency fluctuation or political or economic uncertainty. Funds focusing their investments on certain sectors
increase their vulnerability to any single economic or regulatory development. This may result in greater share price volatility. The
Funds focus their investments in Japan, thereby increasing the impact of events and developments in Japan that can adversely
affect performance. Investments in currency involve additional special risks, such as credit risk, interest rate fluctuations, derivative
investment risk and the effect of varied economic conditions. Derivative investments can be volatile and may be less liquid than
other securities, and more sensitive to the effect of varied economic conditions. As these Funds can have a high concentration in
some issuers, the Funds can be adversely impacted by changes affecting those issuers. Due to the investment strategy of these
Funds, they may make higher capital gain distributions than other ETFs. Please read the Funds’ prospectuses for specific details
regarding the Funds’ risk profile.
WisdomTree Japan Hedged Capital Goods Index: An index weighted by float-adjusted market capitalization, designed to provide exposure to Japanese capital
goods companies while at the same time neutralizing exposure to fluctuations between the yen and the U.S. dollar. WisdomTree Japan Hedged Financials Index: An
index weighted by float-adjusted market capitalization, designed to provide exposure to Japanese financial companies while at the same time neutralizing exposure
to fluctuations between the yen and the U.S. dollar. WisdomTree Japan Hedged Health Care Index: An index weighted by float-adjusted market capitalization,
designed to provide exposure to Japanese health care companies while at the same time neutralizing exposure to fluctuations between the yen and the U.S. dollar.
WisdomTree Japan Hedged Real Estate Index: An index weighted by float-adjusted market capitalization, designed to provide exposure to Japanese real estate
companies while at the same time neutralizing exposure to fluctuations between the yen and the U.S. dollar. WisdomTree Japan Hedged Tech, Media and Telecom
Index: An index weighted by float-adjusted market capitalization, designed to provide exposure to Japanese tech, media and telecom companies while at the
same time neutralizing exposure to fluctuations between the yen and the U.S. dollar. MSCI Japan Index: A market cap-weighted subset of the MSCI EAFE Index
that measures the performance of the Japanese equity market. MSCI Japan Local Currency Index: A market cap-weighted index that measures the performance
of the Japanese equity market in the local currency (yen). WisdomTree Japan Hedged Equity Index: An index designed to provide exposure to Japanese equity
markets while at the same time neutralizing exposure to fluctuations of the Japanese yen movements against the U.S. dollar. Constituents are dividend-paying
companies incorporated in Japan that derive less than 80% of their revenue from sources in Japan. Weighting is by cash dividends paid. MSCI Japan Small
Cap Index: A free float-adjusted market capitalization-weighted index designed to measure the equity market performance of Japanese small-cap securities.
WisdomTree Japan SmallCap Dividend Index: Designed to provide exposure to dividend-paying small-capitalization companies in Japan.
WisdomTree Funds are distributed by Foreside Fund Services, LLC, in the U.S. only.
WTGM-0992
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