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Fund Spy

Reasons to be Wary of Two Popular ETFs

Are Japan and dividend-paying stocks worth your attention?

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Judging from fund flows, trading volume, and requests we receive for new analyses, investor interest in a pair of exchange-traded funds, iShares MSCI Japan and iShares Dow Jones Select Dividend, is running high. Are these funds worthwhile? Possibly, but investors should make sure they understand what they're getting before diving into either one.

 IShares MSCI Japan Index (EWJ)
Through the end of April the iShares MSCI Japan Index was clearly one of the most popular funds of any type. It was among the 20 best-selling mutual funds so far in 2004 in terms of net inflows, garnering about $2.2 billion and edging out big name traditional open-end mutual funds such as  Fidelity Low-Priced Stock (FLPSX) and  American Funds Investment Company of America (AIVSX), according to Financial Research Corp. IShares MSCI Japan also is one of the most actively traded of all ETFs.

It's not surprising. The fund has gained more than 43% over the trailing 12-month period ending June 10, and, after years of stagnation and disappointment, there is renewed hope that the Japanese economy and stock market is finally growing again.

Dan Culloton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.