Australia has enjoyed economic expansion for almost 20 years
now. Before the global financial crisis hit the country,
Australia was in a decent situation financially, thanks mainly to
its extensive reserves of natural resources and effective
A Closer Look at New Zealand and Australia
). The economy grew at an average annual rate of 3.8% during
WISDMTR-AUS DVD (AUSE): ETF Research Reports
ISHARS-AUSTRAL (EWA): ETF Research Reports
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Australia's Reserve Bank slashed interest rates to record lows in
response to the intensifying financial crisis. The nation came
through the global recession relatively unscathed. However,
stimulus spending schemes by the Labor government led the country
into deficit. (Read:
Time to Buy the Australian Dollar ETF?
What's happening now?
For a long period the economy experienced sturdy growth, but the
growth in recent times has been more sluggish. This is mainly due
to a fall in iron-ore demand from the country's largest importer
While some analysts still fear that the economy may crash, we
received some good news on the economic front. The Australian
economy recorded moderate growth in the first quarter; however
with the Q2 results in place the country is slowly picking
According to the Australian Bureau of Statistics, GDP rose 0.6%
in the second quarter, from the previous quarter when it rose
0.5%. This marks 22 years of consecutive growth for the
Australian economy. The IMF expects the economy to expand by 3.0%
and 3.3% in 2013 and 2014.
Can Tony Abbott's Presidential Election attract
Mr. Abbott has ended the six years of rule by the Labor party led
by ex-president Mr. Rudd. With Mr. Abbott taking the seat, his
top priorities include expanding infrastructure, reducing
government spending, abolishing tax on carbon emissions and
mining and restricting the flow of asylum seekers.
The new administration has also promised some tax incentives to
the mining industry as well as manufacturers. This in turn could
bring in more business opportunities in the country and help the
big miners. Given Abbott's presidential victory, and his pledge
to the Australian economy, investors are likely to take advantage
of the situation.
Investors who wish to place their bets in the improving economy
of Australia may play the ETFs listed below:
iShares MSCI Australia Index Fund
Investors might find iShares EWA an interesting choice to play on
Australia. Launched in March 1996, the product has amassed a huge
asset base of $1.96 billion. It is the oldest and the most
popular ETF in the region with a focus on large caps. The fund
seeks to replicate the performance of the MSCI Australia Index,
before fees and expenses.
The product holds 70 securities in the basket and puts around 61%
of assets in the top ten firms, with Commonwealth Bank of
Australia, BHP Billiton and Westpac Banking Corp. taking the top
three spots. The trio takes almost a 31% share in the basket.
Financials accounts for about 50% of assets, while Materials
makes up another 18%. Consumer Staples and Energy combine for
another 15% of EWA leaving little room for Industrials,
Utilities, Discretionary firms, or Telecoms.
The fund is liquid as it trades in good volume of more than 2
million shares a day on an average. This suggests that there is
no extra cost involved in the fund beyond the expense ratio of
0.50%. The ETF delivered returns of 10.31% for the one year
period ended June 30.
Further, EWA yields a high dividend of 6.09% per annum (read:
4 Excellent Dividend ETFs for Income and
). As a result, this product could be a yield destination for
WisdomTree Australia Dividend Fund
Launched in June 2006, AUSE comes second in terms of popularity,
with an AUM of $61.7 million, and tracks the WisdomTree Australia
Dividend Index. This ETF can be an interesting option for
investors seeking current income, especially due to its
diversified portfolio of dividend paying stocks.
In terms of market capitalization, the product is tilted towards
mid-cap stocks (55%), while large-cap stocks take the rest. Thus,
it provides a pure play in dividend paying income stocks of the
Australian equity markets.
The product is well diversified across 63 securities with just
around 28% in the top ten holdings. National Australia Bank,
Westpac Banking Corp. and Mineral Resources Ltd. take the top 3
spots. Financials leads the sector with 20% allocation, while
Consumer Discretionary, Industrials, Materials and Consumer
Staples take double digit allocation in AUSE (read:
Do Country ETFs Really Provide
The ETF is slightly expensive relative to its counterparts, as it
charges 58 bps in fees per year from investors. In addition, low
volume (8,800 shares a day) results in a wide bid ask spread for
The product has returned 11.37% as of June 30 for a one-year
period. Moreover, the fund also gives an attractive dividend
yield of 4.22%.
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