Japan Fund Conundrum (exchange rate mystery)

fishinthe.net, others:

Something weird is going on in all the Japan stock mutual fund (EWJ,
JEQ, others): the fund prices have taken off starting around the
summer of this year--about the time the Yen/US$ exchange rate started
going up (Yen weakening from low 100s to about 120).

Now I was under the impression that if the Yen weakens and the dollar
strengthens, then existing shareholders of Japanese mutual funds that
originate in the US should see the price of the US funds DROP. Because
the US funds are priced in dollars? But do they use ADRs or invest
directly in Yen?

Concrete example:

You buy 1 share of JEQ, a Japanese investing mutual fund based in the
USA, when the Yen/$ ratio is 100:1. Then, 6 months later, assume the
Nikkei index has not moved, and JP stocks are flat, but the Yen/$ ratio
is 150:1.

Shouldn't the price of JEQ be 50% LOWER? But it seems the price is 50%
HIGHER.

I suppose that if all the funds are hedging their dollar positions, or
if ADRs are somehow used so that if the Yen weakens you make money,
then the 50% higher price is justified, but I can't figure out how it
would be justified otherwise.

Can anybody otherwise explain why all the JP mutual funds have taken
off since last summer?

The thesis I'm working on is that JP Yen rate will fall back to 100:1
from its present level, and you can make money in it by buying JP
stocks via US-based JP-investing mutual funds, like JEQ, EWJ, etc.

RL

Re: Japan Fund Conundrum (exchange rate mystery)

JEQ is not a good example. CEF's are traded at discounts and premiums and
it's probably leveraged.
In addition to that it is a managed fund so the holdings have a great deal
to do with the price.





"raylopez99" <> wrote in message
news:
> fishinthe.net, others:
>
> Something weird is going on in all the Japan stock mutual fund (EWJ,
> JEQ, others): the fund prices have taken off starting around the
> summer of this year--about the time the Yen/US$ exchange rate started
> going up (Yen weakening from low 100s to about 120).
>
> Now I was under the impression that if the Yen weakens and the dollar
> strengthens, then existing shareholders of Japanese mutual funds that
> originate in the US should see the price of the US funds DROP. Because
> the US funds are priced in dollars? But do they use ADRs or invest
> directly in Yen?
>
> Concrete example:
>
> You buy 1 share of JEQ, a Japanese investing mutual fund based in the
> USA, when the Yen/$ ratio is 100:1. Then, 6 months later, assume the
> Nikkei index has not moved, and JP stocks are flat, but the Yen/$ ratio
> is 150:1.
>
> Shouldn't the price of JEQ be 50% LOWER? But it seems the price is 50%
> HIGHER.
>
> I suppose that if all the funds are hedging their dollar positions, or
> if ADRs are somehow used so that if the Yen weakens you make money,
> then the 50% higher price is justified, but I can't figure out how it
> would be justified otherwise.
>
> Can anybody otherwise explain why all the JP mutual funds have taken
> off since last summer?
>
> The thesis I'm working on is that JP Yen rate will fall back to 100:1
> from its present level, and you can make money in it by buying JP
> stocks via US-based JP-investing mutual funds, like JEQ, EWJ, etc.
>
> RL
>

Re: Japan Fund Conundrum (exchange rate mystery)

"Ed" <> wrote in message
news:
> JEQ is not a good example. CEF's are traded at discounts and premiums and
> it's probably leveraged.
> In addition to that it is a managed fund so the holdings have a great deal
> to do with the price.
>
>

The correct link to the fund is:


The Nomura link abbove is for JOF.

Re: Japan Fund Conundrum (exchange rate mystery)

raylopez99 wrote:
> Now I was under the impression that if the Yen weakens and the dollar
> strengthens, then existing shareholders of Japanese mutual funds that
> originate in the US should see the price of the US funds DROP. Because
> the US funds are priced in dollars? But do they use ADRs or invest
> directly in Yen?

After reading a little from what appears to me an abstract bias towards
ADRs (a blurb on the International Bank for Reconstruction and
Development and the International Development Association, comprising
subsidaries of sundry multinational origins), I would tend not to say
Yen. To propigate foreign issues listing across global markets, there
is readily apparent value, yet there is no less some ambiguity whether
ADRs, over their underlying equities, are to be the prefered vehicle --
should ADRs and underlying issues both be available within the same
demographic exchange to an investor. With ADRs there is first a legal
issue, all the more reassuring to an investor -- should foreign
issuances fall within legal provisions ADRs uniquely qualify within its
sovereign domain, versus a weaker protection environ pertaining to
native same-equity issues. Next, are marketing theorems that encompass
indices, as ADRs, and as models for lower cost factoring aggregates
over higher expediency within liquidity. Within practise, however,
direct issues from a region deemed fit for negation are apt to be
constrained by native trading volume and overhead costs; ADRs may then
be observed to trade with an overall higher volume, over what their
principles measure, while such principles are perceived not to be
adversely affected by a benificient ambience prosperity has more widely
to reap.

Re: Japan Fund Conundrum (exchange rate mystery)

raylopez99 wrote:
> fishinthe.net, others:
>
> Something weird is going on in all the Japan stock mutual fund (EWJ,
> JEQ, others): the fund prices have taken off starting around the
> summer of this year--about the time the Yen/US$ exchange rate started
> going up (Yen weakening from low 100s to about 120).
>
> Now I was under the impression that if the Yen weakens and the dollar
> strengthens, then existing shareholders of Japanese mutual funds that
> originate in the US should see the price of the US funds DROP. Because
> the US funds are priced in dollars? But do they use ADRs or invest
> directly in Yen?

Correct.
The decline of the yen has tended to reduce returns. The Japanese stock
market has soared so much that it's given Japan funds a positive return
despite the decline in the yen. But if the yen hadn't declined, the
return from these funds would have been even higher. Here's an article
that explains it:



In the short term, funds that don't hedge against currency fluctuations
are reducing your total return from the Japanese stock market. But can
the strength of the dollar be sustained over the long term? Many
analysts don't think so, so over the long term, unhedged funds make more
sense.


--
Steven D. Litvintchouk
Email:

Remove the NOSPAM before replying to me.

Re: Japan Fund Conundrum (exchange rate mystery)

Steven L.-- U the man!

THANKS! A straight answer, I love it. I only wish I could tell which
Japan mutual funds are unhedged against the dollar, but since I'm going
to invest in an index fund, it's probably a safe bet it's not hedged.

RL


Steven L. wrote:
> raylopez99 wrote:
> > fishinthe.net, others:
> >
> > Something weird is going on in all the Japan stock mutual fund (EWJ,
> > JEQ, others): the fund prices have taken off starting around the
> > summer of this year--about the time the Yen/US$ exchange rate started
> > going up (Yen weakening from low 100s to about 120).
> >
> > Now I was under the impression that if the Yen weakens and the dollar
> > strengthens, then existing shareholders of Japanese mutual funds that
> > originate in the US should see the price of the US funds DROP. Because
> > the US funds are priced in dollars? But do they use ADRs or invest
> > directly in Yen?
>
> Correct.
> The decline of the yen has tended to reduce returns. The Japanese stock
> market has soared so much that it's given Japan funds a positive return
> despite the decline in the yen. But if the yen hadn't declined, the
> return from these funds would have been even higher. Here's an article
> that explains it:
>
>
>
> In the short term, funds that don't hedge against currency fluctuations
> are reducing your total return from the Japanese stock market. But can
> the strength of the dollar be sustained over the long term? Many
> analysts don't think so, so over the long term, unhedged funds make more
> sense.
>
>
> --
> Steven D. Litvintchouk
> Email:
>
> Remove the NOSPAM before replying to me.

Re: Japan Fund Conundrum (exchange rate mystery)

"raylopez99" <> wrote in message
news:
> Steven L.-- U the man!
>
> THANKS! A straight answer, I love it. I only wish I could tell which
> Japan mutual funds are unhedged against the dollar....

All that's required is a little homework but it's your money.
------------------------------------------------------------ -----
JEQ:
Investment Objective :
Effectively April 28, 2000, the investment objective of the Fund is to
outperform over the long term, on a total return basis (including
appreciation and dividends), the sectors of the Tokyo Stock Price Index
("TOPIX"), a composite market-capitalization weighted index of all common
stocks listed on the First or Second Section of the Tokyo Stock Exchange
("TSE") or listed on the over-the-counter market in Japan or listed on other
stock exchanges in Japan.
It is not an objective of the Fund to predict changes in its benchmark
index, the overall Japanese stock market or economy, or the U.S.
Dollar/Japanese Yen exchange rate. The Fund's goal is to outperform its
benchmark, while attempting to remain fully invested.

The Fund does not engage in hedging strategies.
------------------------------------------------------------ ------
EWJ and ITF are also unhedged.

Re: Japan Fund Conundrum (exchange rate mystery)

raylopez99 wrote:

> Steven L.-- U the man!
>
> THANKS! A straight answer, I love it. I only wish I could tell which
> Japan mutual funds are unhedged against the dollar,

That info should be in the prospectus.

At least it was with the international funds I used to invest in.


--
Steven D. Litvintchouk
Email:

Remove the NOSPAM before replying to me.