Japan ETF Will Hedge Currency Risk

An extreme case of hyperinflation occurred recently in Zimbabwe. Investors buy all types of assets during hyperinflation to escape currency devaluation, including equities, which have some real value behind the shares. Zimbabwe was no different, and the country's stock market appreciated 322,111% in 2007, while the currency officially depreciated by about 12,000%.

An American investor who put $10,000 in the Zimbabwe stock market at the start of the year would have seen his or her portfolio grow to $32 million, ignoring the currency depreciation. Once the currency was returned to dollars, the investor would be left with a still healthy $270,000. If the investor hedged his or her exposure, though, the return would have been the full $32 million.

For those investors who worry about currency devaluation in Japan in the long run but expect Japanese stocks to rally, DXJ is the ETF to consider.

-- Written by Don Dion in Williamstown, Mass.

At the time of publication, Dion had no positions in stocks mentioned.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.

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