Playing Japan

Jegersmart

FATHEROFTWO wrote: »

Thanks....this would involve me shorting the Yen.
However I do not know when this event will happen and I dont want to use a short that would result in the promise being filled and is a tad above my appetite for risk .This plan would also not allow me to benefit from any rise in the Nikkei.

I prefer to use funds although I do have some ETFs in Gold...had an Etf in silver bit sold a few months ago with a health profit.

IS Ther an all encompassing fund that does it all for you?

I don't really see any reason why younger Japanese in the future would necessarily buy Japanese equities specifically - even if the assumption that the Japanese bond will market will collapse is correct?

In any case, whilst I like the thinking this is a highly speculative trade or position even if it was just the timing information you were missing which in itself is huge. If you add in which currency pair to use or basket, ETF or Put Options or whatever it becomes a bigger headache. As I said, I wouldn't personally consider using the assumptions above as a solid platform on which to base a strategy personally. If pushed I would probably prefer the currency short option but wouldn't like to say which vehicle could be the best one for you.

All very IMHO and DYOR

I would be interested in hearing how you get on tbh

Reaper

FATHEROFTWO wrote: »

Is there any other funds to compare this with or what would the search factors be using trustnet/morningstar be for example would be it be japan hedge or similar?

I don't think there is any easy way of finding them. You just have to get a list of Japanese funds and read up on their current investment strategies. They don't generally commit to hedging which is why you will not be able to search on it, they use it or drop it as they see fit rather than forcing themselves to do it as a fund objective.

FATHEROFTWO_2

Here is a few intresting articles on Japanes debt crisis and possible outcomes

http://www.moneyweek.com/investments/stock-markets/moneyweek-asia-japan-debt-and-stockmarkets-03902

http://www.moneyweek.com/investments/bonds/japanese-government-bonds-the-best-trade-ever-52926

http://www.moneyweek.com/investments/stock-markets/asia-and-japan/japan-classic-investment-opportunity-or-not-52924

http://www.moneyweek.com/investments/stock-markets/asia-and-japan/japan-classic-investment-opportunity-or-not-52924

The last article indicates a number of funds that have a hedge on the outcome to benefit from the scenario.

The above articles are lengthy reading but goes into the situation is great depth.

I would welcome any comments in particular from the speculators and the long term investors.

SteveSilva

I bought into the Neptune Japanese Opportunities fund because (at least at the time when I bought in) it was well hedged against a currency fall

Can someone explain to me as a beginner what they mean by a fund being well hedged against a currency fall. What exactly does that mean?

ruperts

If the nikkei is to be sent flying for the reasons described then wouldn't a simple index tracker do the job?

I've been thinking about putting a little drip feed on a Japan index tracker for a while but for much less complicated reasons. I just think it's cheap and I'm happy to build up a pot over a decade or more and wait patiently for things to improve.

But I don't understand the currency risk particularly well so I've steered clear until now. Basic logic tells me that if their currency drops the value of my investment drops with it but that's as far as I've got.

FATHEROFTWO_2

If the currency drops in the value of the goods they export rise hence the share price increases as the intrinsic value is the same as it was before only it takes more yen currency to buy it however if there is a hedge built in to the fund then it should also boost the fund values.

This scenario is very likely but the question is when will the debt bubble will burst ?

Ive been looking at funds that take advantage of this scenario

namely

Melchior japan advantage
GLG japan corealpha

and

JOHCM Japan

any thought as they all have curency hedges from sterling to yen?

Perhaps some of the fund investors could comment as well

Ark_Welder

SteveSilva wrote: »

Can someone explain to me as a beginner what they mean by a fund being well hedged against a currency fall. What exactly does that mean?

Because funds invested overseas are likely to buy assets that are in a different currency to Sterling, there is the risk that the rate of exchange between the two will alter - either up or down. So this can have an impact on the returns that you would get if you were to sell. The purpose of the currency hedge is to remove or reduce that risk in the event that the other currency was to fall in value against Sterling.

Assume £1 = ¥200

If you put £100 into a fund, that would be translated into ¥20000 and would buy ¥20000 of assets.

Assume the exchange rate moves to £1 = ¥250 (so the Yen has become weaker against Sterling), but the price of the asset in Yen does not change.

The assets are still worth ¥20000, but when this amount is converted back into Sterling, the new exchange rate must be used:

¥20000 / 250 = £80

So currencey movements can have an effect on the price of an asset when it is converted back into Sterling. But hedging could have been used to bring the Sterling price closer to the £100 mark.

Sometimes an investment manager can get it wrong and if the Yen was to get stronger against Sterling instead of weaker then this potential gain due to the change in the exchange rate would be missed:

Instead of weakening, Yen strenthens against Sterling:

¥20000 / 150 = £133.33

...but currency hedging would mean that the return to the Sterling investor would still be £100.

Jegersmart

FATHEROFTWO wrote: »

If the currency drops in the value of the goods they export rise hence the share price increases as the intrinsic value is the same as it was before only it takes more yen currency to buy it however if there is a hedge built in to the fund then it should also boost the fund values.

This scenario is very likely but the question is when will the debt bubble will burst ?

Ive been looking at funds that take advantage of this scenario

namely

Melchior japan advantage
GLG japan corealpha

and

JOHCM Japan

any thought as they all have curency hedges from sterling to yen?

Perhaps some of the fund investors could comment as well

If you are asking purely from a currency hedge perspective then I think reading the prospecti is the best thing to do and make your own mind up.

As already stated, I wouldn't bank on Japanese equities doing that well if the Japanese Govvie Bond market collapses.......but thats what makes these things interesting - different opinions:)

I have around a 2% expsoure to Japan IIRC, and for now it is staying around there

IMHO, DYOR

FATHEROFTWO_2

Jegersmart wrote: »

If you are asking purely from a currency hedge perspective then I think reading the prospecti is the best thing to do and make your own mind up.

As already stated, I wouldn't bank on Japanese equities doing that well if the Japanese Govvie Bond market collapses.......but thats what makes these things interesting - different opinions:)

I have around a 2% expsoure to Japan IIRC, and for now it is staying around there

IMHO, DYOR

At present I have zero exposure to Japan and have specific asian funds that exclude Japan due to the 20 year recession but everything must come to an end and if there is a crisis there are always people who benefit from it in some way.

It maybe time to take a second look at Japan for the long term provided there is a hedge to protect the investor or benefit from the potential currency crash.

sabretoothtigger

Nissan has nearly gone broke in the past. Nothing is certain but Japan is a net exporter to China I think so I presume they will not suffer under positive world gdp growth


A normal fund is not hedged, it will gain value when YEN gains value

A hedged fund will gain value when Sterling gains value


Only a radical would rate sterling over Yen. The opposite has been true for years and Japan is self funded in debt and UK are poor so Neptune is the only guy who is hedging currency risk on a Japan fund

Neptune might be selling Yen bonds also. The Artemis strategic assets fund is also selling Yen bonds as the interest is only 1% he says its not risky at all

I also own unhedged normal Japan invested funds like L&G Technology tracker and also Aberdeen Asia. They do mostly ok but not much
I sold my plain Nikkei tracker just before the earthquake, over the last year it had gained 1% - unhedged.

Theres no doubt its a cheap place to buy but compare Nikkei to SPX in gold ( another solid currency like Yen is ) and they are similar flat markets both of them.


Since the 2008 crash Nikkei lost about 5% and to a Japanese investor SPX gained about 8%