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Billions of dollars bail on this once-hot trade

Money is flying out of a once-popular bet on Japan.

The WisdomTree Japan Hedged Equity ETF (DXJ), which combines a long position on Japanese stocks with a short position on the Japanese yen, has seen major outflows this year. On net, $2.7 billion worth of the DXJ has been redeemed this year, which is the largest amount of redemptions suffered by any ETF, according to data from ETF.com.

"We saw all of this hot money come in, and now we're watching the reverse, as all of it floods out," Eddy Elfenbein, editor of the "Crossing Wall Street" blog, said Monday on CNBC's "Trading Nation."

Elfenbein added a warning: "Just because a great trade goes all the way back to square one, doesn't mean it's a great trade again. I would stay away from this ETF."

Indeed, the DXJ has not been a particularly great place to have money invested of late. After a massive rally from November 2012 into mid-2013 and another period of significant gains in the first half of 2015, the DXJ has fallen 20 percent since the start of December (even after a substantial bounce from its February lows). This happened as both legs of the trade — the long-Japanese-stocks side and the short-Japanese-yen side — have turned the wrong way.

Not only did this send the ETF lower, but it threw its very thesis into question. Since the yen has risen this year despite further easing efforts from the Bank of Japan, the "currency-hedged" aspect that once increased gains now amplifies losses.

As Elfenbein suggested, the current outflows are a significant shift for the ETF. In 2013, the DXJ was topped on the list of biggest recipients of net inflows only by the SPDR S&P 500 ETF (SPY).

Now, it would appear that the so-called "hot money" is off searching for the next trendy trade. That currently appears to be gold. The SPDR Gold ETF (GLD) leads the 2016 net inflows list with $5.2 billion worth of creations.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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