The Australian economy is showing signs of growth. The business conditions index increased 2 points to 14 in April 2017, a nine-year high, as per the National Australia Bank’s monthly business survey of over 400 firms. Moreover, business confidence increased 7 points to a seven-year high of 13.
The NAB survey revealed that improvement in employment data was the primary driver of improved business conditions (read: Time to Invest in Australia ETFs as Earnings & Dividends Rebound?).
Moreover, the central bank raised its growth forecast for the coming financial year. It blamed the weak performance in the September 2016 quarter to temporary factors, and suggested that a platform for greater growth has been set, owing to low interest rates and improving global growth conditions. The Reserve Bank of Australia (RBA) expects GDP growth to be 2.5%-3.5% for the year ended December 2017. The bank expects a sharp increase in exports of liquefied natural gas (LNG).
The RBA expects CPI inflation and underlying inflation to be in the range of 1.5%-2.5% for the same period. Increased worries in the retail sector and competitive pressure faced by the industry have led inflation to remain at lower levels, below the target of 2-3%. The RBA does not expect inflation to reach its target levels before June 2019. Moreover, Australia’s ever booming property market has lowered the chances of a rate cut (read: Australia Keeps Rates Unchanged: ETFs in Focus).
Let us now discuss some ETFs primarily focused on the Australian economy.
IShares MSCI Australia ETF EWA:
This fund is the most popular Australia ETF in the space, offering exposure to the most liquid equities in the Australian economy. It tracks the MSCI Australia Index.
This fund has AUM of $1.86 billion and charges a relatively moderate fee of 48 basis points a year. The fund is heavy on Financial Services (43.52%), Basic Materials (14.54%), and Real Estate (8.80%) (as of May 4, 2017). From an individual holdings perspective, the fund has high exposure to the Commonwealth Bank Of Australia, Westpac Banking Corporation Corp, and Australia and New Zealand Banking group, with 11.17%, 8.69%, and 6.91% allocation, respectively (as of May 4, 2017). The fund returned 9.24% year to date and 14.09% over the last one year (as of May 5, 2017). EWA currently has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.
WisdomTree Australia Dividend Fund AUSE:
This ETF is another popular fund offering exposure to the Australian economy and tracks the WisdomTree Australia Dividend Index.
This fund has AUM of $35.13 million and charges a fee of 58 basis points a year. The fund is heavy on Financials (26.01%), Basic Materials (21.28), and Consumer Discretionary (13.91%) (as of May 5, 2017). From an individual holdings perspective, the fund has high exposure to National Australia Bank Ltd, Rio Tinto (LON:RIO) Ltd, and Australia and New Zealand Banking group, with 3.73%, 3.54%, and 3.53% allocation, respectively (as of May 5, 2017). The fund returned 5.93% year to date and 13.80% over the last one year (as of May 5, 2017). AUSE currently has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
SPDR MSCI Australia Quality Mix ETF QAUS:
This fund tracks the MSCI Australia Quality Mix A-Series Index, which is an index of Australian securities targeting performance of sub-indexes based on one of the three factors: quality, low-volatility, and value. Each sub index receives equal weight.
This fund has AUM of $12.87 million and charges a relatively moderate fee of 30 basis points a year. The fund is heavy on Financials (32.83%), Real Estate (15.17%), and Consumer Staples (12.21%) (as of May 4, 2017). From an individual holdings perspective, the fund has high exposure to CSL Limited, Wesfarmers Limited, and Commonwealth Bank of Australia, with 6.63%, 6.55%, and 5.78% allocation, respectively (as of May 4, 2017).The fund returned 8.95% year to date and 10.34% over the last one year (as of May 5, 2017). QAUS currently has a Zacks ETF Rank #1 with a Medium risk outlook.
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ISHARS-AUSTRAL (EWA): ETF Research Reports
SPDR-MSCI ASF (QAUS): ETF Research Reports
WISDMTR-AUS DVD (AUSE): ETF Research Reports
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Zacks Investment Research