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Check Tue's NAV change against Tue index close in Japan. They may have done fair value pricing on Tue because of the bounce back in US markets on Tue after Japanese markets had closed.
If a U.S. mutual fund invests in securities that trade on foreign exchanges that close before the U.S. stock market closes, the fund must adjust its net asset value (NAV), which is an investment company’s total assets minus its total liabilities. Mutual funds generally must adjust their NAV on a daily basis to account for news that has come out since the foreign markets closed. European exchanges, for example, close four hours before U.S. markets close at 4:00 p.m. Eastern, and the Tokyo exchange closes 14 hours before U.S. markets close.
If the mutual fund determines that foreign local closing market prices are stale, it will adjust its NAV accordingly. This adjustment is fair value pricing. In order to determine the fair value of a security, fund companies will typically seek quotes from multiple brokers and pricing services. The index returns, on the other hand, are calculated using only the closing values in the local market.
Fair value pricing attempts to establish a NAV that fairly values the fund for both existing and new shareholders. Fair value pricing is required by the SEC for mutual funds, except for closed-end funds, whose shares are not required to be repurchased by the fund. Fair value pricing is in place to protect shareholders, but it can cause confusion when comparing the return of an index with the return of a mutual fund. The index return is calculated using the closing prices on the local foreign exchange. These effects can be exaggerated when the market makes large moves at the beginning and/or end of a reporting period, which has recently been the case. Source: http://www.smfadvisors.com/a-resource/market-insights/163-differences-due-to-fair-value-pricing
Reply to @Crash: Without fair value pricing, foreign mutual funds are subject to arbitrage. Traders will see that the fund's holdings fell yesterday, but that the futures for that market are up (or vice versa). This enables them to buy the fund before the end of U.S. trading and sell the next day, banking the profit at the expense of long term fund holders.
another reason for underperformance could be the movement in JPY. the +2.5% nikkei performance is in local currency, ie yen. it has been recently accompanied by a substantial cheapening of yen against USD, which offset most of the japanese rally for a USD based unhedged investor. for example, during 2013, nikkej went up around 60%, but about 37% in the dollar terms.
Re: Japan and perhaps a remaining decent play for we small retail investors continues to be DXJ for combining equity and currency hedging. 'Course the big run for Japan began in Oct. 2012; so not sure how much more remains at this point in time. My 2 cents worth.
Reply to @catch22: hi Mark. all is well. DXJ is indeed a decent choice for a small guy, provided the thingy is trading close to its NAV. the consensus is that this is the beginning for japan. so the rally will continue (and the currency will continue to fall). but sometimes, of course, the consensus is horribly wrong... only time will tell.
Reply to @fundalarm: DXJ is a good choice only if you keep an eye on it ready to sell and so have stop limits at all times. It almost behaves like a leveraged fund because of the hedging (albeit without as much of the daily reset problem with pure leveraged funds). The Yen and Nikkei are almost perfectly inversely coordinated in the conditions that are contributing to the market rise and so it can head up or down in a hurry faster than either one of them. This ETF seems to be doing more hedging to benefit from Yen slide than just making it currency-neutral. I am not sure.
I have been doing the pure play with leveraged short Yen with YCS for a while now. Less volatile than DXJ with slightly better returns but requires the same active monitoring.
I think EWJ is a safer and less volatile alternative for exposure to Japan for less active investors and exposure via broader Asia or EAFE fund for passive investors.
Comments
If a U.S. mutual fund invests in securities that trade on foreign exchanges that close before the U.S. stock market closes, the fund must adjust its net asset value (NAV), which is an investment company’s total assets minus its total liabilities. Mutual funds generally must adjust their NAV on a daily basis to account for news that has come out since the foreign markets closed. European exchanges, for example, close four hours before U.S. markets close at 4:00 p.m. Eastern, and the Tokyo exchange closes 14 hours before U.S. markets close.
If the mutual fund determines that foreign local closing market prices are stale, it will adjust its NAV accordingly. This adjustment is fair value pricing. In order to determine the fair value of a security, fund companies will typically seek quotes from multiple brokers and pricing services. The index returns, on the other hand, are calculated using only the closing values in the local market.
Fair value pricing attempts to establish a NAV that fairly values the fund for both existing and new shareholders. Fair value pricing is required by the SEC for mutual funds, except for closed-end funds, whose shares are not required to be repurchased by the fund. Fair value pricing is in place to protect shareholders, but it can cause confusion when comparing the return of an index with the return of a mutual fund. The index return is calculated using the closing prices on the local foreign exchange. These effects can be exaggerated when the market makes large moves at the beginning and/or end of a reporting period, which has recently been the case.
Source:
http://www.smfadvisors.com/a-resource/market-insights/163-differences-due-to-fair-value-pricing
Hope all is well with you and yours.
Re: Japan and perhaps a remaining decent play for we small retail investors continues to be DXJ for combining equity and currency hedging.
'Course the big run for Japan began in Oct. 2012; so not sure how much more remains at this point in time.
My 2 cents worth.
Take care,
Catch
Regards,
Ted
http://www.thestreet.com/print/story/1293544.html
I have been doing the pure play with leveraged short Yen with YCS for a while now. Less volatile than DXJ with slightly better returns but requires the same active monitoring.
I think EWJ is a safer and less volatile alternative for exposure to Japan for less active investors and exposure via broader Asia or EAFE fund for passive investors.