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Amid sluggishness in emerging markets and global growth fears, Australia has lately been showing encouraging signs for investors. The country witnessed the fastest pace of growth in the first quarter of 2016 in four years thanks to a surge in exports and a rise in household spending. In the aforementioned quarter, Australia's economy grew at 1.1% as compared to the expected quarterly growth of around 0.8%.
The country’s export volumes were driven by further increases in resource production from newly completed projects and better-than-expected weather. Depreciation of the Australian dollar also supported the surge in exports (read: Best Performing Currency ETFs of Q1).
Although export growth is expected to be comparatively muted in the second quarter of 2016, overall growth this year is forecast to remain slightly above estimates.
Challenges Remain
In spite of the bullish picture depicted above, there are certain challenges to the Australian economy. It has been under pressure ever since the mining boom ended due to the slowdown in demand from China, one of its largest trading partners. In fact, mining activity was quite modest in the first quarter of 2016.
There are also some warning signs like recession-level wage growth and record-low inflation. The country’s central bank expects moderate jobs growth in the coming months. This is in stark contrast to very strong levels seen in late 2015 (read:Is Rising Debt Alarming for Australia ETFs?).
The political situation is also fraught with uncertainty with the country headed for a double dissolution on July 2. This was called by the Prime Minister Malcolm Turnbull several months back after the country's upper house, the Senate, repeatedly rejected labor reform bills aimed at curbing union corruption in the building and construction industry (read: Australia ETFs in Focus on Likely Snap Elections).
Despite the heightened political uncertainty and other challenges, investors still believing in the Australian growth story could look at the following ETFs focused on the country.
EWA tracks the MSCI Australia Index and holds 73 stocks in its basket. The top two firms have one-fifth allocation while other firms hold less than 6.2% share in the basket. From a sector look, financials dominates the fund’s return at 51.6% followed by materials (13.2%). This fund has an AUM of $1.7 billion and average daily volume of more than 3.4 million shares. It charges 48 bps in annual fees and has gained 5.5% so far in the year (as of June 23, 2016). It has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook (read: Most Vulnerable Asia-Pacific ETFs on China Issues).
WisdomTree Australia Dividend Fund
This fund follows the WisdomTree Australia Dividend Index. It has an AUM of $34.2 million and trades in paltry volume of 3,000 shares a day on average. Expense ratio comes in at 0.58%. Holding 66 stocks in its basket, the product is widely diversified as none of the components holds more than 3.2% of assets. Sector-wise, it has a definite tilt toward financials at 22.3%, followed by materials (17.6%), consumer discretionary (14.5%) and industrials (11.2%). The fund has gained 14.4% so far this year and has a Zacks ETF Rank of 3 with a Medium risk outlook.
iShares Currency Hedged MSCI Australia ETF
This ETF tracks the MSCI Australia 100% Hedged to USD Index and invests primarily in EWA with currency hedge tacked on to it. The fund has accumulated $7.5 million in its asset base since its inception and charges 51 bps in annual fees. Volume is paltry as it exchanges 6,000 shares on an average daily basis. It has gain almost 4% so far this year. The fund has a Zacks ETF Rank of 3 (see all Asia-Pacific Developed ETFs here).
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Is It Time to Invest in Australian ETFs?
Amid sluggishness in emerging markets and global growth fears, Australia has lately been showing encouraging signs for investors. The country witnessed the fastest pace of growth in the first quarter of 2016 in four years thanks to a surge in exports and a rise in household spending. In the aforementioned quarter, Australia's economy grew at 1.1% as compared to the expected quarterly growth of around 0.8%.
The country’s export volumes were driven by further increases in resource production from newly completed projects and better-than-expected weather. Depreciation of the Australian dollar also supported the surge in exports (read: Best Performing Currency ETFs of Q1).
Although export growth is expected to be comparatively muted in the second quarter of 2016, overall growth this year is forecast to remain slightly above estimates.
Challenges Remain
In spite of the bullish picture depicted above, there are certain challenges to the Australian economy. It has been under pressure ever since the mining boom ended due to the slowdown in demand from China, one of its largest trading partners. In fact, mining activity was quite modest in the first quarter of 2016.
There are also some warning signs like recession-level wage growth and record-low inflation. The country’s central bank expects moderate jobs growth in the coming months. This is in stark contrast to very strong levels seen in late 2015 (read:Is Rising Debt Alarming for Australia ETFs?).
The political situation is also fraught with uncertainty with the country headed for a double dissolution on July 2. This was called by the Prime Minister Malcolm Turnbull several months back after the country's upper house, the Senate, repeatedly rejected labor reform bills aimed at curbing union corruption in the building and construction industry (read: Australia ETFs in Focus on Likely Snap Elections).
Despite the heightened political uncertainty and other challenges, investors still believing in the Australian growth story could look at the following ETFs focused on the country.
ETFs in Focus
iShares MSCI Australia ETF (EWA - Free Report)
EWA tracks the MSCI Australia Index and holds 73 stocks in its basket. The top two firms have one-fifth allocation while other firms hold less than 6.2% share in the basket. From a sector look, financials dominates the fund’s return at 51.6% followed by materials (13.2%). This fund has an AUM of $1.7 billion and average daily volume of more than 3.4 million shares. It charges 48 bps in annual fees and has gained 5.5% so far in the year (as of June 23, 2016). It has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook (read: Most Vulnerable Asia-Pacific ETFs on China Issues).
WisdomTree Australia Dividend Fund
This fund follows the WisdomTree Australia Dividend Index. It has an AUM of $34.2 million and trades in paltry volume of 3,000 shares a day on average. Expense ratio comes in at 0.58%. Holding 66 stocks in its basket, the product is widely diversified as none of the components holds more than 3.2% of assets. Sector-wise, it has a definite tilt toward financials at 22.3%, followed by materials (17.6%), consumer discretionary (14.5%) and industrials (11.2%). The fund has gained 14.4% so far this year and has a Zacks ETF Rank of 3 with a Medium risk outlook.
iShares Currency Hedged MSCI Australia ETF
This ETF tracks the MSCI Australia 100% Hedged to USD Index and invests primarily in EWA with currency hedge tacked on to it. The fund has accumulated $7.5 million in its asset base since its inception and charges 51 bps in annual fees. Volume is paltry as it exchanges 6,000 shares on an average daily basis. It has gain almost 4% so far this year. The fund has a Zacks ETF Rank of 3 (see all Asia-Pacific Developed ETFs here).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>