NEW YORK (TheStreet) -- Historically, dividend growth in Japan has lagged behind other developed markets such as the U.S., U.K. and Australia. That's changing. Bolstered by an expansive monetary policy, a weakening yen and an effort to stoke inflation, Japanese companies are boosting dividends and a pair of new exchange-traded funds are tapping into this trend.
The WisdomTree Japan Hedged Dividend Growth Fund (JHDG) debuted in April, and was followed by the WisdomTree Japan Dividend Growth Fund (JDG) in late May. The major difference between the two is that, as its name implies, the Hedged Dividend Growth Fund features a currency hedged kicker, meaning the ETF has the potential to outperform its unhedged counterpart when the U.S. dollar rises against the yen. The WisdomTree Japan Dividend Growth Fund is not a currency hedged product. Both ETFs charge fees of 0.43% per year.
Both offer investors exposure to rising Japanese dividends. For the year that ended Feb. 28, dividend growth for the MSCI Japan Index was 20.2%, more than 50% ahead of the S&P 500's dividend growth.
"Japanese companies are known for keeping large cash balances -- a practice well suited for deflation," WisdomTree said in a research note. "Lowering these cash balances is one way to quickly increase ROE, and a powerful avenue to accomplish this would be increasing dividends. And while U.S. dividend growth has been tough to beat over the last year, Japan's looked even better."
Both the unhedged and unhedged fund, are exposed to the weakening yen by way of their allocations into export-heavy sectors. For example, consumer discretionary and technology names combine for 34.5% of JDG's weight, and 34.6% of JHDG's weight. For the year that ended April 30, dividend growth for WisdomTree's Japan Technology, Telecom and Media Index was nearly 18% while the Capital Goods Index, which includes discretionary stocks, saw dividend growth of 9.3%.