Bet on Buffett using this Japanese ETF
Warren Buffett’s Berkshire Hathaway released fourth quarter results over the weekend, and with that, the conglomerate included Buffett’s long-awaited letter to shareholders.
This letter informs investors about Berkshire’s stock holdings. Although Buffett isn’t shy about extolling the virtues of the US economy, he doesn’t limit his US equity investments. In fact, some of Berkshire’s biggest equity bets are on Japanese companies, several of which reside on well-known stock exchanges. funds such as WisdomTree Hedged Japanese Equity Fund (DXJ ).
In Buffett’s letter to Berkshire investors, it was revealed that Itochu Corp., Mitsubishi Corp. and Mitsui & Co. are all among the conglomerate’s top 15 equity positions. Each of these companies is a member of the DXJ listing.
“We own stocks based on our expectations of their long-term trading performance and not because we view them as vehicles for opportune market movements,” Buffett wrote in the letter. “This point is crucial: Charlie (Munger) and I are not stock pickers; we are business selectors.
At the end of 2021, Berkshire’s stakes in Itochu, Mitsubishe and Mitsui amounted to 6% of each company. In dollar terms, Buffett’s company owned about $7.6 billion of those shares.
Those DXJ components “invest in overseas energy and metal assets, which have benefited from a huge rebound in commodity prices and have just posted record quarterly profits,” Yun Li reports for CNBC.
There are other reasons to consider DXJ to add international diversification to US-heavy portfolios, including Japan being one of the most attractive non-US developed markets in the world and the potential for a stronger dollar as the Federal Reserve begins to raise interest rates interest. The most recent cycle of central bank tightening is generally expected to begin in March.
“The yen has been depreciating against the US dollar since the start of 2021, reversing four years of steady appreciation. USD/JPY cross is currently trading around 115. Rising US long-term interest rates have been the main driver of yen weakness over the past 12 months,” says Fitch Ratings.
Prove that currency hedging is effective in the right environment, DXJ is 11.7% higher over the past 12 months, while the unhedged version of the index is widely followed MSCI Japan’s index is 4.9% lower. Year to date, DXJ is slightly higher, while the MSCI Japan’s index is 5.1% lower.
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