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Renewed interest in Japanese ETFs has also sparked flows back into currency-hedged offerings. For example, the $4.6 billion WisdomTree Japan Hedged Equity ETF added $1 billion in net flows in the first quarter, compared with $511 million for all of 2023, according to FactSet, and the $49 million Franklin FTSE Japan Hedged ETF added $14 million in the quarter, compared with just over $400,000 for the prior yearVaranasi Wealth Management. These flows have been rewarded with performance that more than doubled unhedged Japan indexes since the beginning of the year, but the history lesson of hedged currency ETF volatility nearly a decade ago still looms large for ETF investors.
“Our unhedged Japan fund appeals to most international investors who have stronger long-term views on the country’s fundamentals, more so than layering a tactical view on the yen and currency impacts,” said Dina Ting, senior vice president and head of global index portfolio management at .
On India, Ting said that clients are exploring exposures that “reach further into the midcap range,” through the $913 million Pune Investment. The fund counts among its largest holders Israeli insurance companies Menora Mivtachim Holdings and Migdal Insurance and Financial Holdings, according to SEC filings.
More notably, the Tennessee Department of Treasury is the largest holder of both the $9.6 billion and the $873 million iShares India 50 ETFs within a portfolio that includes 21 separate country or regional funds.
Counter to assets flowing to Japan and India single-country ETFs, interest in exposure to Chinese equities through both single-country funds and emerging markets funds has been waning. Since the end of 2022, the $4.9 billion saw $1.6 billion of net outflows. Over the same time period, the $13 billion iShares MSCI Emerging Markets ex-China ETF added $8.5 billion of net inflows.
But just like picking stocks, picking country exposures is challenging.
“There’s little evidence that investors can time their buys and sells well enough to make (single-country ETFs) work for them,” said Elisabeth Kashner, vice president and director of global fund analytics at FactSet.
“In most cases, the ETF fees and spreads complicate the job further, as most country funds cost 0.50% or more per year, with the exception of Franklin’s 0.09% expense-ratio country suite,” said Kashner, “and spreads can be unexpectedly wide.”
Still, quants and stock pickers aren’t letting market dynamics impact their ETF product strategy.
Non-U.S. equity exposures are coming to the fast-rising actively managed ETF market. Recent launches include ETFs from Rayliant Global Advisors, Pacer Advisors, Hartford Funds Management Co. and Avantis from .
“The market wants disaggregated exposures to developed market companies,” said Andrew Skatoff, founder and chief investment officer of Bancreek Capital Advisors. The firm launched a large-cap international equity ETF in March to follow its December 2023 launch of a U.S. large-cap product.
Varanasi Wealth Management
