WEBVTT - Is Japan Back? 0:00:05.320 --> 0:00:06.000 Booking a trillions. 0:00:06.000 --> 0:00:07.920 I'm Joe Webber and I'm Eric Altunas. 0:00:12.680 --> 0:00:17.800 Eric, there's a country that is actually like big in 0:00:18.079 --> 0:00:21.760 ETFs and we actually don't really talk about it enough, 0:00:22.400 --> 0:00:25.720 but you're heading to Asia on a trip, and then 0:00:25.760 --> 0:00:27.280 all of a sudden we started talking about Japan and 0:00:27.280 --> 0:00:29.120 I was like, well, you know what, we should actually 0:00:29.160 --> 0:00:32.839 do a Japan episode. And to do that, we're going 0:00:32.920 --> 0:00:36.720 to have Jeremy Schwartz, who's the global Chief investment Officer 0:00:37.200 --> 0:00:39.560 at Wisdom Tree joining us. What are we going to 0:00:39.600 --> 0:00:40.200 talk to him about? 0:00:40.280 --> 0:00:40.440 Eric? 0:00:40.920 --> 0:00:45.320 Yeah, well, beyond those reasons, there's also a new prime 0:00:45.320 --> 0:00:49.800 minister there who, by all accounts is very like Abbe 0:00:50.120 --> 0:00:52.760 and Abe Nomis was a whole thing from about ten 0:00:52.840 --> 0:00:56.480 years ago where this guy just cut He did a 0:00:56.480 --> 0:01:00.960 lot of you know, currency manipulation in order to exports 0:01:01.360 --> 0:01:03.640 and that created what was called the fee wars for 0:01:03.680 --> 0:01:07.200 a couple of years there. And DXJ, which is the 0:01:07.240 --> 0:01:10.959 Wisdom Tree Japan hedged DTF was like a total rock star. 0:01:11.080 --> 0:01:13.920 In fact, remember the trivia episode we did. One of 0:01:13.920 --> 0:01:16.920 the trivia questions was what was the LASTDTF that wasn't 0:01:17.000 --> 0:01:19.440 Vanguard or I shares to win the annual flow crown 0:01:19.760 --> 0:01:22.840 and the answer is DXJ. In twenty thirteen, it took 0:01:22.880 --> 0:01:27.520 a nine billion, but then it started to underperform the 0:01:27.600 --> 0:01:30.440 non hedged, a lot of people left. It was like 0:01:30.480 --> 0:01:33.000 a rise and then a fall. Then it actually had 0:01:33.000 --> 0:01:35.880 a good run again, but people didn't really come back 0:01:35.920 --> 0:01:37.360 like they did. It was like it didn't get a 0:01:37.360 --> 0:01:40.000 second bite at the apple, which we've seen on occasion. 0:01:40.560 --> 0:01:43.440 But with this leader in here, maybe we'll get a 0:01:43.440 --> 0:01:45.520 third bite at the apple. Maybe this time it will work. 0:01:45.560 --> 0:01:48.360 I can already see some of the assets growing in it, 0:01:48.960 --> 0:01:51.520 but it's still, you know, basically a shell of what 0:01:51.600 --> 0:01:55.680 it was ten years ago. But the design of DXJ 0:01:55.840 --> 0:01:59.560 should be perfectly fit for this prime minister. Of what 0:01:59.600 --> 0:02:01.000 I'm reading is true. 0:02:01.200 --> 0:02:04.920 That prime minister is Sanai Takeishi, the first female prime 0:02:04.920 --> 0:02:08.680 minister in Japan's history. Her nickname is a throwback to 0:02:08.760 --> 0:02:12.680 Margaret Thatcher, the Iron Lady. And joining us is Jeremy 0:02:12.680 --> 0:02:21.440 Schwartz of Whitstry this time on trillions is Japan back. Jeremy, 0:02:21.680 --> 0:02:22.680 Welcome back to Trillians. 0:02:23.400 --> 0:02:24.359 Thanks so much for having me. 0:02:24.440 --> 0:02:26.959 One of my favorite topics to talk about with Eric 0:02:27.080 --> 0:02:30.280 from first episode of ETFIQ to back. 0:02:30.919 --> 0:02:32.280 Japan might be coming back. 0:02:32.520 --> 0:02:34.679 Oh so, Jeremy, we did a check. 0:02:34.760 --> 0:02:37.320 You were on in April of twenty twenty two. 0:02:38.240 --> 0:02:40.800 It's been a second so excited to have you back. 0:02:41.040 --> 0:02:43.880 So let's hear you answer the question, is Japan back? 0:02:43.919 --> 0:02:46.080 I'm gonna guess you're gonna say the affirmative. 0:02:47.240 --> 0:02:50.239 Well, the thing is that Japan never left. I mean, 0:02:50.560 --> 0:02:52.840 the thing is people might have traded it wrong. But 0:02:53.000 --> 0:02:55.280 you know, if I look at the performance of DXJ 0:02:56.360 --> 0:02:59.320 compared to the S and P five hundred since twenty twelve, 0:03:01.280 --> 0:03:04.600 how many international funds can you say have beaten the 0:03:04.639 --> 0:03:07.639 S ANDB five hundred since twenty twelve. EFA by the way, 0:03:07.919 --> 0:03:11.800 MSCI EFA, the broader national benchmark that everybody buys for 0:03:11.960 --> 0:03:15.960 international has returned like seven percent a year. The S 0:03:16.040 --> 0:03:19.560 and P has done fifteen percent a year, okay, and 0:03:19.639 --> 0:03:22.959 so seven versus fifteen for thirteen years, by the way, 0:03:23.400 --> 0:03:26.960 compounds to like one hundred and fifty percent versus five 0:03:27.040 --> 0:03:30.600 hundred percent. So this is how much international has beaten. 0:03:31.240 --> 0:03:35.680 What has beaten the S and P since that time. 0:03:36.880 --> 0:03:37.520 D x JET. 0:03:38.000 --> 0:03:40.520 So it's like that now there's a period where it 0:03:40.680 --> 0:03:43.240 wasn't but as of today. That's you know, and we're 0:03:43.240 --> 0:03:47.119 recording early October. That is true, and so there's been 0:03:47.160 --> 0:03:49.320 I think, you know, this comes back to a fundamental 0:03:49.360 --> 0:03:52.760 problem through international I mean, Eric, this is something I've 0:03:52.760 --> 0:03:53.680 talked about for a long time. 0:03:54.120 --> 0:03:55.280 This is somewhat a. 0:03:55.240 --> 0:03:59.080 Branding problem, but you know, it also just a sequencing 0:03:59.120 --> 0:04:03.040 problem that people think hedging is this exotic thing, when 0:04:03.720 --> 0:04:06.240 like betting on currencies is actually a much more interesting, 0:04:06.280 --> 0:04:07.680 more exotic thing. Like why are you going to go 0:04:07.760 --> 0:04:10.280 long the en? You know, if you had to say default, 0:04:10.280 --> 0:04:12.040 should it be long the en or should just be 0:04:12.080 --> 0:04:15.080 neutral the en? Most people would have been neutral, but 0:04:15.280 --> 0:04:17.159 they default to being long v en all the time. 0:04:17.200 --> 0:04:19.720 It's kind of a crazy thing. But I'd say DXJA 0:04:19.880 --> 0:04:24.040 never left, but people left and they made a mistake. 0:04:24.240 --> 0:04:26.360 So what's interesting about that timeline that you lay out 0:04:26.480 --> 0:04:30.320 is just how much has actually changed in Japan. You know, 0:04:30.480 --> 0:04:34.839 this huge monetary policy experiment. It was they had like 0:04:34.960 --> 0:04:39.119 negative interest rates forever year and change ago. They left 0:04:39.160 --> 0:04:42.280 that and like re entered sort of the normalcy. Now 0:04:42.320 --> 0:04:45.560 there's inflation and even Japanese are starting to have to 0:04:45.560 --> 0:04:48.480 invest differently because they can't just keep cash under the 0:04:48.520 --> 0:04:53.800 Mattress anymore. So is this is dxj's success. Is it 0:04:53.920 --> 0:04:59.040 really like the the international investment opportunity or is there 0:04:59.040 --> 0:05:00.360 a domestic story there or too. 0:05:00.880 --> 0:05:04.600 Yeah, people do ask that question about if it's also 0:05:04.600 --> 0:05:07.320 one of the oldest populations of declining populations. So like 0:05:07.360 --> 0:05:09.480 when when we talk about it, is it really about 0:05:09.480 --> 0:05:12.800 the local Japan story or just their global you know, 0:05:13.000 --> 0:05:16.279 sort of footprint. I have said that it's not about 0:05:16.320 --> 0:05:19.360 just the local economy, that it's Japan is generally like 0:05:19.520 --> 0:05:22.159 a global growth play that it sort of exports all 0:05:22.200 --> 0:05:24.240 around the world. They have some of the you know, 0:05:24.279 --> 0:05:28.240 they're they're the infrastructure from their their semiconductors can find 0:05:28.240 --> 0:05:31.480 their way. Soft Bank is like an AI play. Tokyo 0:05:31.560 --> 0:05:34.359 Electron feeds into a lot of the other global AI stories, 0:05:34.760 --> 0:05:36.719 you know, so they are components. They don't have like 0:05:36.800 --> 0:05:40.320 a they'd say the mag seven like we have these 0:05:40.360 --> 0:05:43.200 tech leaders, but they have things that support a lot 0:05:43.200 --> 0:05:45.640 of that, you know, I'd say. The other person who's 0:05:45.640 --> 0:05:48.200 brought the most interest to Japan has been Buffet. So 0:05:48.360 --> 0:05:51.560 like you think about world's premier best value investers. Five 0:05:51.640 --> 0:05:54.040 years ago, I was telling people follow Buffet in Japan 0:05:54.040 --> 0:05:57.880 I've probably done six or seven different pieces follow Buffet 0:05:57.920 --> 0:06:02.480 into Japan, and in fact, they actually then created a fund. 0:06:02.160 --> 0:06:04.480 To buy half the stocks. 0:06:04.560 --> 0:06:07.160 You know, half of its weight basically is in the 0:06:07.200 --> 0:06:11.800 Buffet stocks, so OP j OPBJ Japan Opportunities, which we 0:06:11.839 --> 0:06:14.920 took a smaller fund to do that. We had a 0:06:14.960 --> 0:06:17.000 small cap fund. That's the more local that was the 0:06:17.040 --> 0:06:20.360 more local story. I just said, you know, people don't 0:06:20.400 --> 0:06:22.480 care much enough about the small caps. As much as 0:06:22.520 --> 0:06:23.960 I cared, people didn't care. 0:06:24.040 --> 0:06:24.800 But the Japan. 0:06:24.640 --> 0:06:28.400 Opportunity story with Buffet tagging along actually is is just 0:06:28.440 --> 0:06:29.279 as interesting today. 0:06:29.279 --> 0:06:33.320 Actually, when we look at the year today returns, it's 0:06:33.320 --> 0:06:36.600 pretty close. So the non hedged is up eighteen percent, 0:06:37.040 --> 0:06:39.360 d XJ is up about the same, and the SMP's 0:06:39.440 --> 0:06:43.880 up thirteen percent. Now, the dollar has been weakening, and 0:06:43.960 --> 0:06:46.320 usually if the dollar's weakening, it's not good for currency 0:06:46.320 --> 0:06:50.359 hedged international ATFS, right, you want the dollar strengthening and 0:06:50.440 --> 0:06:52.000 Japan's currency getting weaker. 0:06:52.000 --> 0:06:53.560 That's the perfect trade for d XJ. 0:06:54.720 --> 0:06:57.400 Is this prime minister going to do what Abe did 0:06:57.440 --> 0:07:00.800 and like really purposely make the current see worthless in 0:07:00.839 --> 0:07:04.400 order to jack up exports, and how much is left 0:07:04.440 --> 0:07:06.440 in that trade because when I just went back and 0:07:06.440 --> 0:07:11.320 looked at five year, d XJ is destroying the non hedged. 0:07:11.840 --> 0:07:13.800 So I guess that would be my two questions as 0:07:13.840 --> 0:07:15.200 somebody thinking about going in now. 0:07:16.520 --> 0:07:18.400 Yeah, it's a very tricky question. 0:07:18.440 --> 0:07:21.000 These cursies can be very unpredictable, which goes back to 0:07:21.040 --> 0:07:23.400 like do you really want to bet on the end 0:07:23.440 --> 0:07:26.400 going up? You know, which it's a it's a high 0:07:26.480 --> 0:07:28.200 bar to say, like do I really want to bet 0:07:28.240 --> 0:07:28.960 on the end? 0:07:29.840 --> 0:07:32.880 You know what d XJA you're basically getting today. 0:07:32.920 --> 0:07:35.400 You're getting called three and a half to four percent 0:07:35.680 --> 0:07:38.080 on top of the local market or this is an 0:07:38.080 --> 0:07:42.239 important distinction because when you hedge, you get the interest 0:07:42.320 --> 0:07:45.200 rate differentials on top of the local market return. 0:07:45.640 --> 0:07:47.360 Like you hear about the end carry trade. You hear 0:07:47.360 --> 0:07:48.400 about these carry trades. 0:07:48.720 --> 0:07:52.000 When you're hedging, you're paid the interest rate differentials between 0:07:52.760 --> 0:07:55.480 the local you know, between the US and local market. So, yes, 0:07:55.520 --> 0:07:58.080 the Feds bring rates down, Japan's been hiking a little 0:07:58.080 --> 0:08:00.280 bit for a little while. We're getting five to six 0:08:00.320 --> 0:08:03.640 percent carry on top of the local market return, which 0:08:03.640 --> 0:08:05.000 is again is how much the end has to go 0:08:05.080 --> 0:08:07.520 up to break even with the hedge, right, so they're 0:08:07.680 --> 0:08:11.080 starting out four percent behind the eight ball is how 0:08:11.160 --> 0:08:13.280 much the unheedged has to go up now the end 0:08:13.280 --> 0:08:15.320 had the dollar had beginning week, A lot of people 0:08:15.320 --> 0:08:18.280 are think the dollar had peeked out and things go. 0:08:19.000 --> 0:08:21.800 So it is not just in Japan's control. I mean, 0:08:21.840 --> 0:08:24.080 for sure, when AB came in, you had eighty en 0:08:24.120 --> 0:08:27.080 to the dollar. Today we're over one fifty end to 0:08:27.160 --> 0:08:29.760 the dollar. So it's definitely a very different starting point. 0:08:29.800 --> 0:08:32.560 It was a very overly strong end when ABI came in. 0:08:32.600 --> 0:08:37.240 You wouldn't say it's an overly strong end today. But 0:08:37.360 --> 0:08:39.319 it sort of comes back to the policies, like if 0:08:39.320 --> 0:08:43.160 she's trying to get them to delay raising rates, if 0:08:43.200 --> 0:08:46.040 they do a lot more physical spending. They've got some 0:08:46.080 --> 0:08:50.120 the highest debts to GDP. You know, there's just the questions. 0:08:50.200 --> 0:08:52.560 It's like what you know, Now, she might be pro 0:08:52.559 --> 0:08:55.480 growth and that might be good for the currency, but 0:08:55.520 --> 0:08:57.959 it's it's sort of an it's it's unpredictable, so it's like, 0:08:58.160 --> 0:08:59.120 is that your thesis? 0:08:59.320 --> 0:09:00.920 The thesis is is she's. 0:09:00.720 --> 0:09:03.839 Good for the equities, she might not be good for 0:09:03.880 --> 0:09:06.000 the currency, or at least it adds extra noise and 0:09:06.040 --> 0:09:08.440 extra volatility when you know, you could buy the stocks 0:09:08.760 --> 0:09:11.400 and get paid over three percent today to hedge it. 0:09:20.080 --> 0:09:22.280 One thing you mentioned was the debt to GDP. 0:09:23.000 --> 0:09:26.439 As Joel knows, I've been deep in this bitcoin book, 0:09:27.240 --> 0:09:29.400 and one of the things that you have to cover 0:09:29.440 --> 0:09:33.560 when you're covering this is deficit debt inflation. And I 0:09:33.559 --> 0:09:37.360 think the US is like one thirty percent. I have 0:09:37.400 --> 0:09:39.760 to double check out, but I believe Japan's double two 0:09:39.880 --> 0:09:42.559 hundred and fifty percent. They're basically like the highest in 0:09:42.600 --> 0:09:46.440 the world for a big country. That seems crazy to me, 0:09:46.559 --> 0:09:48.800 But as some people pointed out, that doesn't necessarily mean 0:09:48.800 --> 0:09:51.720 you're going to get a lot of inflation. And Japan 0:09:51.800 --> 0:09:55.400 is also you know, there's a famous like kind of 0:09:55.480 --> 0:09:59.400 meme on social media where somebody starts talking about US 0:09:59.440 --> 0:10:03.319 stocks and somebody comes in, now do Japan, And it's 0:10:03.400 --> 0:10:05.760 usually looking at like the Lost Decade of Japan, like, 0:10:05.760 --> 0:10:08.600 which was a couple decades ago, about how a stock 0:10:08.640 --> 0:10:09.800 market can just do nothing. 0:10:10.520 --> 0:10:13.160 So I guess with I don't know as. 0:10:13.000 --> 0:10:15.040 An investor, and I'm thinking, like, hey, this is a 0:10:15.080 --> 0:10:18.800 debt ridden country. I don't hear a lot of things 0:10:18.840 --> 0:10:23.280 about mag seven type stocks there. What am I really 0:10:23.280 --> 0:10:26.800 buying here is it just to trade on monetary policy? 0:10:27.840 --> 0:10:32.680 And how much more monetary policy can be dubbish or 0:10:32.760 --> 0:10:36.280 loose given they're already at that debt to GDP level. 0:10:36.640 --> 0:10:39.520 My friends at all Star Charts j C, PERETZTI, Strasa 0:10:39.600 --> 0:10:43.120 do these like thirty year breakout charts on Japan, Like, 0:10:43.240 --> 0:10:45.320 you know, like they has been building this base for 0:10:45.640 --> 0:10:47.920 thirty years and you just got like the Nieka breakout 0:10:47.920 --> 0:10:49.840 of forty eight thousand, and it's you know, nineteen eighty 0:10:49.880 --> 0:10:52.760 nine was the peak. It's just catching up to the 0:10:52.840 --> 0:10:54.360 nineteen eighty nine peak. 0:10:54.440 --> 0:10:55.719 But it was like one of the. 0:10:55.679 --> 0:11:00.400 Greatest bubbles of all time. Like international stocks were sixty 0:11:00.440 --> 0:11:03.240 percent Japan in nineteen eighty nine. It was one of 0:11:03.240 --> 0:11:05.680 the most expensive markets. You thought the tech bubble in 0:11:05.720 --> 0:11:09.319 two thousand was expensive, more of Japan was more expensive 0:11:09.360 --> 0:11:11.520 than tech bubble of two thousand, Right, That's how big 0:11:11.520 --> 0:11:15.200 it was. Now it's the inverse today. If I look 0:11:15.240 --> 0:11:18.240 at that, you know, I've got two different Japan foots. 0:11:18.240 --> 0:11:21.040 But let's just stay with di XJA the flagship fourteen 0:11:21.080 --> 0:11:23.760 and a half pe when the S and P's twenty 0:11:23.760 --> 0:11:27.960 three pe. Okay, so SMP selling at a four to 0:11:28.040 --> 0:11:30.520 five percent earning sield. We've got a two and a 0:11:30.559 --> 0:11:32.800 half percent equity premium. Let's call it, you know, like 0:11:32.880 --> 0:11:34.960 we look at the earning zield versus a tipshield, so 0:11:35.440 --> 0:11:37.480 you know'll take you over forty years to w your 0:11:37.520 --> 0:11:41.160 money in bonds today in perching power terms, under two percent, 0:11:41.320 --> 0:11:44.559 tip shield stocks might take you fourteen to fifteen years. 0:11:44.600 --> 0:11:47.640 In the US at a five percent earnings field, Japan 0:11:47.679 --> 0:11:52.000 at a fourteen pe is like an eight seven to 0:11:52.080 --> 0:11:54.240 eight percent earning yield. It's more like a eight to 0:11:54.320 --> 0:11:56.240 nine year doubling of your perching power. 0:11:56.280 --> 0:11:57.920 It's a much. 0:11:57.679 --> 0:12:01.160 Better value than is like the call it the inverse bubble, 0:12:01.240 --> 0:12:05.120 Like people just have lack of apathy. You know, there's 0:12:05.160 --> 0:12:07.840 not any interest. International has been out of favor for 0:12:07.880 --> 0:12:11.000 this fifteen twenty years at the US Max seven have 0:12:11.000 --> 0:12:13.920 been in favor, and so nobody cares, and so the 0:12:14.000 --> 0:12:17.360 valuations support that. The Japan Opportunities Fund, which has all 0:12:17.360 --> 0:12:19.800 those buffet stocks, is a twelve and a half pe 0:12:20.360 --> 0:12:23.560 eight percent earn ex zield, very high quality stocks, doing 0:12:23.640 --> 0:12:27.480 a ton of buybacks, growing the dividends. I mean, it's 0:12:27.520 --> 0:12:29.199 such a good value story. 0:12:28.920 --> 0:12:29.560 In my opinion. 0:12:29.800 --> 0:12:33.040 And if you get any positive catalyst that taik these 0:12:33.080 --> 0:12:37.640 takaichi trades. If she is, you know, there's there's questions 0:12:37.640 --> 0:12:39.240 on how effective she's going to be. She's got to 0:12:39.240 --> 0:12:42.800 get her coalition together. But if she is productive in 0:12:42.880 --> 0:12:45.320 lowering tax, if you're talking about doing a ten percent consumption, 0:12:45.480 --> 0:12:48.920 like bringing a flatter tax to ten percent to try 0:12:48.960 --> 0:12:53.560 to restimulate demand, that could be a very very big deal. 0:12:53.800 --> 0:12:57.360 And it's a cheap market. So you know, I obviously 0:12:57.400 --> 0:12:58.120 I like the market. 0:12:58.720 --> 0:13:01.199 How big are these challenges that that she faces, just 0:13:01.280 --> 0:13:04.520 to kind of lay out the landscape tough. 0:13:04.320 --> 0:13:06.920 Man, I mean, it's a tough set of politics. She's 0:13:06.960 --> 0:13:09.000 got to figure out who's going to to go with her, 0:13:09.080 --> 0:13:12.319 how she brings it. They do have these inflation problemts, 0:13:12.360 --> 0:13:15.839 but people are somewhat Eric's when you talk about the 0:13:15.880 --> 0:13:18.560 currency before versus abe. You know, the end was way 0:13:18.600 --> 0:13:21.600 too strong before. Now people are worried that their yen 0:13:21.600 --> 0:13:23.959 aren't going as far and there's inflation, and so the 0:13:24.360 --> 0:13:27.160 week end makes it a hamster. One of our former 0:13:27.200 --> 0:13:28.520 strategies said she needs to go for. 0:13:28.520 --> 0:13:29.559 A strong end policy. 0:13:30.200 --> 0:13:33.280 So there's there's questions, but that is one of the 0:13:33.320 --> 0:13:38.880 things she's got to confront. But she's definitely being trying 0:13:38.880 --> 0:13:41.400 to bring a pro growth mindset the battle. Like I 0:13:41.440 --> 0:13:44.719 call it, Eric, we launched an Asia Defense fund, and 0:13:45.640 --> 0:13:47.160 Eric was giving me a hard time in the name 0:13:47.200 --> 0:13:49.160 of like, well is it why you know? Is there 0:13:49.280 --> 0:13:51.520 China in that Asia Defense fun? And I said, well, no, no, 0:13:51.679 --> 0:13:54.120 this is with the battle for China and. 0:13:54.320 --> 0:13:57.280 Joel I told him they need to run with that 0:13:57.760 --> 0:13:58.720 and call it. 0:13:59.000 --> 0:13:59.640 I forget the name. 0:13:59.640 --> 0:14:03.560 We came out with defending ourselves from China, Asia Defense 0:14:03.600 --> 0:14:05.000 etf versus. 0:14:05.040 --> 0:14:06.480 Just like Asia Defense. 0:14:06.520 --> 0:14:08.880 I'm like, you should own the fact that it's a 0:14:08.920 --> 0:14:10.440 specific situation there. 0:14:10.760 --> 0:14:12.480 I don't know if Jeremy wants to comment on that. 0:14:13.360 --> 0:14:15.680 I mean, it is the battle with China fun in 0:14:15.720 --> 0:14:17.680 some ways. I mean we called it Asia Defense. I 0:14:17.679 --> 0:14:19.560 thought I was implied that it was for the battle 0:14:19.600 --> 0:14:21.600 for China. Yes, I understand his point, like is it 0:14:21.600 --> 0:14:24.160 with China or for the battle? But that is very 0:14:24.160 --> 0:14:29.160 topical too. In ta Kaichi, one of the ta Kayuchi trades, 0:14:29.160 --> 0:14:32.000 I wrote a piece that the ta Kaichi trades, and 0:14:32.840 --> 0:14:36.080 one of the trades is a defense positioning like she 0:14:36.200 --> 0:14:39.720 is very strong against China and she thinks they if 0:14:39.760 --> 0:14:43.520 there were to be a conflict with Taiwan. She wants 0:14:43.560 --> 0:14:47.520 to defend Taiwan and she wants to increase spending, and 0:14:47.560 --> 0:14:50.360 so she you know, now, if you think back to 0:14:50.400 --> 0:14:54.040 the US politics and geopolitics, there is you know, Trump 0:14:54.480 --> 0:14:57.120 is negotiating hard with China. Maybe by the time people 0:14:57.120 --> 0:15:00.920 hearing this, they negotiate some grand bargain, but it's it's hot, 0:15:01.000 --> 0:15:02.680 you know, the China US has been one of the 0:15:02.680 --> 0:15:07.120 big hot topics this year. Abe was one of Trump's 0:15:07.120 --> 0:15:10.760 close allies, and then you had sort of a fledgling 0:15:10.800 --> 0:15:13.320 of prime miships that weren't you know, doing as well 0:15:13.360 --> 0:15:17.720 with Trump. The idea was Takaichi might be a better 0:15:17.800 --> 0:15:20.880 negotiator with Trump on some of these issues, more friendly 0:15:20.920 --> 0:15:22.840 with Trump because she is kind of viewed as this 0:15:22.880 --> 0:15:25.320 abbe two point zero in some ways. But the defense 0:15:25.360 --> 0:15:27.600 story is one of the big stories, and so I think, 0:15:28.880 --> 0:15:30.720 you know, the European defense was one of the hot 0:15:30.800 --> 0:15:34.360 ETFs this year. Like we somehow in our European team 0:15:34.520 --> 0:15:37.680 launched a European Defense Fund like the week Zelenski was 0:15:37.720 --> 0:15:39.800 in the White House, and that fun just took off 0:15:39.920 --> 0:15:40.760 like like. 0:15:40.720 --> 0:15:41.360 You would expect. 0:15:41.360 --> 0:15:45.560 But we actually think this Asia defense today is the 0:15:45.920 --> 0:15:48.560 hotspot actually for where things could go over the next 0:15:48.600 --> 0:15:51.960 few years. And Takichi is very supportive for Asian defense. 0:15:53.000 --> 0:15:55.880 As long as we're talking about China and Trump and 0:15:56.000 --> 0:15:58.880 Japan sort of in the middle, but maybe leaning a 0:15:58.880 --> 0:16:01.360 little bit more towards Trump, I just want to go 0:16:01.520 --> 0:16:04.520 back to trade, which has obviously been the backdrop for 0:16:04.880 --> 0:16:07.480 so much of what we've been talking about all year. 0:16:08.760 --> 0:16:13.000 Japan very much an export economy. I'm curious specifically about 0:16:13.120 --> 0:16:17.240 the automotive industry and sort of your exposure to it 0:16:17.320 --> 0:16:21.000 and how it's going to try and navigate what's to 0:16:21.040 --> 0:16:24.360 come and how that might impact your investments. 0:16:24.720 --> 0:16:27.880 Yeah, that that is why I've been highlighting this second fund. 0:16:27.880 --> 0:16:29.880 I have this Japan Opportunities Fund because it's much more 0:16:29.880 --> 0:16:33.440 in the industrials, the five buffet stocks than just betting 0:16:33.480 --> 0:16:34.960 on the car companies. 0:16:34.960 --> 0:16:36.760 Now I'm not saying that DXJ is just. 0:16:36.720 --> 0:16:39.600 The car companies, but in terms of the sectors, you know, 0:16:39.680 --> 0:16:43.400 DXJ fourteen a half pe it has, it's going to 0:16:43.440 --> 0:16:46.720 have more exposure to like Toyota, which is its second 0:16:46.800 --> 0:16:49.720 largest holding, or Honda, which is in the top ten. 0:16:49.800 --> 0:16:52.160 You know, so it's going to have twenty five percent 0:16:53.000 --> 0:16:56.120 may be closer to twenty percent in conservatives. Grechary's industrial 0:16:56.160 --> 0:16:57.840 is still a big sector there twenty five percent, So 0:16:58.120 --> 0:17:01.360 it's more tied to that. The autos has been a sector, 0:17:02.040 --> 0:17:05.439 you know, that China's rise has been competing with. Like 0:17:05.480 --> 0:17:08.960 my colleague Sam was just in Mexico coming off of 0:17:08.960 --> 0:17:13.840 a Mexico trip. Everywhere, everywhere, like everything is all China cars, 0:17:13.880 --> 0:17:16.119 and Elon had said, you know, nine of the ten 0:17:16.200 --> 0:17:18.520 largest car kept are gonna be Chinese, you know, because 0:17:18.520 --> 0:17:22.359 of the competition that they are so strong. It's global 0:17:22.560 --> 0:17:25.880 competitive that the car industry has been under pressure everywhere, 0:17:25.880 --> 0:17:29.400 and so that is China a big China competitive dynamic. 0:17:37.680 --> 0:17:39.639 I got an ETF NERD question for you here a 0:17:39.680 --> 0:17:43.280 little bit d XJ again. When I wrote my first book, 0:17:43.320 --> 0:17:45.160 The ETF Toolbox, it. 0:17:45.119 --> 0:17:46.679 Was like DSJA had taken over the industry. 0:17:46.720 --> 0:17:48.680 So I have a whole chapter called currency hatching, which 0:17:48.720 --> 0:17:50.199 isn't that big of a deal anymore like, but at 0:17:50.200 --> 0:17:52.159 the time, that's how big it was. I made a 0:17:52.200 --> 0:17:55.000 whole chapter for it, and I just thought, you guys 0:17:55.440 --> 0:17:58.560 really set the bar for how to market an ETF 0:17:59.000 --> 0:18:02.200 I called speedboat marketing. Instead of acting like an aircraft carrier. 0:18:02.200 --> 0:18:04.000 If you have one of these ETFs that gets hot, 0:18:04.359 --> 0:18:08.760 you drop everything and you rally around this one product. 0:18:08.960 --> 0:18:12.400 They had ads Jrol on Bloomberg TV and elsewhere. 0:18:12.880 --> 0:18:16.080 Take the yen out of Japan. I mean that is good, right. 0:18:16.240 --> 0:18:20.399 Jeremy was everywhere, and Deutsche Bank had a competing product 0:18:20.400 --> 0:18:23.399 that had actually launched earlier, but DXJ got all the money. 0:18:24.359 --> 0:18:24.560 Now. 0:18:24.680 --> 0:18:29.480 DXJ then saw some outflows since and it's had great performance, 0:18:29.520 --> 0:18:31.720 but it hasn't able to kind of get back to 0:18:31.760 --> 0:18:32.960 that peak. 0:18:33.240 --> 0:18:34.040 What do you make of that? 0:18:34.240 --> 0:18:36.520 We on a team have this phrase called like it's 0:18:36.520 --> 0:18:38.760 hard to get a second bite at the apple. If 0:18:38.760 --> 0:18:41.920 you look at high flyers and history past, especially active managers, 0:18:42.480 --> 0:18:45.439 these shooting star types like the Janus twenty, it's just 0:18:45.480 --> 0:18:48.200 hard to come back. Even if you come back performance wise, 0:18:48.400 --> 0:18:51.160 it's hard to come back in a sort of zeitgeist way. 0:18:51.600 --> 0:18:55.120 How do you get DXJ back on people's radars, given 0:18:55.160 --> 0:18:56.800 that they might have been like, well, I did that 0:18:56.960 --> 0:19:01.520 ride already and it was a little and I'm not 0:19:01.560 --> 0:19:03.160 doing that again yet. 0:19:03.240 --> 0:19:04.160 It's very interesting. 0:19:04.480 --> 0:19:07.240 I'll say I probably talked more Curtsey Hedging than anybody 0:19:07.240 --> 0:19:09.800 of the industry for the last fifteen years. 0:19:09.880 --> 0:19:11.360 I did my first one in nine. 0:19:11.359 --> 0:19:14.159 I think I was the first ETF actually, and the 0:19:14.200 --> 0:19:18.040 first one was broad EFA and now, interestingly in the 0:19:18.480 --> 0:19:22.880 history folklore, HDJ, which became Europe, was the first one 0:19:22.880 --> 0:19:26.480 we converted. It's fascinating. I remember talking about a market maker. 0:19:26.520 --> 0:19:28.080 We had a client who wanted to buy it, and 0:19:28.080 --> 0:19:30.639 the market maker didn't want to make this is we're 0:19:30.640 --> 0:19:33.080 talking two thousand and nine, enty ten, and they didn't 0:19:33.119 --> 0:19:35.719 want to quote all the spreads because you had to 0:19:35.840 --> 0:19:39.159 put on these hedges and it was too wide of 0:19:39.160 --> 0:19:43.160 a thing. And the broad EFO just didn't take off. 0:19:43.200 --> 0:19:47.040 And then it was April twenty ten we had DXJ unhedged. 0:19:47.160 --> 0:19:51.200 From six April twenty ten, I added the hedge. We 0:19:51.240 --> 0:19:53.600 added the hedge to the end, and then it took 0:19:53.640 --> 0:19:55.959 off during the earthquake in twenty eleven, so the end 0:19:56.000 --> 0:19:58.720 really went up and people were starting to say, oh, 0:19:58.880 --> 0:20:02.000 this was a going up too much, and so it 0:20:02.040 --> 0:20:03.640 started to work for the end. So we probably talking 0:20:03.640 --> 0:20:07.200 about five hundred million and twenty eleven timeframe after the earthquake, 0:20:07.240 --> 0:20:09.040 and we saw that it was working for a single 0:20:09.080 --> 0:20:12.320 currency with Japan, and then we made hedge the European one, 0:20:12.640 --> 0:20:14.439