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Reserve Bank of Australia Cuts Rate Again: ETFs to Watch
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The Reserve Bank of Australia (RBA) reduced cash rate for the second time in the past four months with an objective to help the economy grow at a faster pace and inflation to pick up. Though the Australian central bank expressed its concerns that inflation may remain low in the next two years or more, the bank thinks that the economy has potential to record strong growth.
ETFs with significant exposure to Australian securities are poised to remain on investor radar in the days ahead as the impact of the central bank’s easing policy will be watched closely.
Second Rate Cut in 4 Months
The minutes from the RBA’s policy meeting on Aug 2 showed that the central bank cut the cash rate to 1.5%, reducing it by 25 basis points. This was the second time in the last four months that the RBA cut the rate to boost the economy. Per the minutes, policy makers “noted that while prospects for growth were positive, there was room for stronger growth, which could be assisted by lower interest rates.”
However, the central bank didn’t clear the air about any further cuts this year. However, it is speculated that there lies a 50% chance of another rate cut this year. Analysts expect that the movement of inflation rate will play a crucial role in the rate cut decision. According to the minutes, “Members noted that the recent CPI data had confirmed that inflation was likely to remain low for some time.” It also added: “There continued to be considerable uncertainty about momentum in the domestic labor market and the extent to which domestic inflationary pressures would rise over the next few years.”
Moreover, the central bank showed concerns about a sluggish Chinese economy, which is the largest trading partner of Australia. The RBA said: “The outlook for the Chinese economy remained an important source of uncertainty for global growth and the demand for commodities” (read: Australia ETFs in Focus on Likely Snap Elections)
Will the Rate Cut Boost the Economy?
The policy members remained dovish about the economy’s growth in the days ahead. Though RBA expects GDP growth in the second quarter to be “more modest” compared to the first quarter’s encouraging annualized GDP growth rate of 3.1%, which was primarily led by strong increase in exports, economic growth is anticipated to increase next year. Moreover, labor market condition is also expected to improve gradually. The policymakers feel that favorable growth condition next year will boost the addition of jobs. Also, “the unemployment rate was expected to fall marginally over the forecast period” (read: Is It Time to Invest in Australian ETFs?).
Moreover, RBA said that concerns regarding “rising household sector leverage and rapid gains in housing prices had diminished.” The minutes also highlighted that these encouraging factors led “the Board, on balance judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.”
Australia ETFs in Focus
We have highlighted three ETFs that have notable exposure to securities from Australia and are poised to remain in focus in the near term (see: all Developed Asia-Pacific ETFs here).
This ETF is the most popular and liquid choice in its space with an AUM of $1.7 billion and an average daily volume of more than 2 million shares. This fund provides exposure to a basket of 72 Australian stocks by tracking the MSCI Australia Index. The product charges 48 bps in fees per year from investors. From a sector perspective, the fund is slightly skewed toward the financial sector with more than half of its assets allocated to it while materials takes the second spot with a double-digit exposure. This fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. The fund has returned 2.5% and 6.7% over the past one-month and three-month periods, respectively.
WisdomTree Australia Dividend ETF
This product tracks the WisdomTree Australia Dividend Index. In total, it holds 65 securities with more than one-fourth of its assets allocated to the top 10 holdings. AUSE has an AUM of $37.4 million and light average daily volume of around 2,000 shares. Sector wise, financials takes the top spot at 23.1% while materials, consumer discretionary and industrials round off the top four. The ETF charges 58 bps in annual fees. It also has a Zacks ETF Rank #3 with a Medium risk outlook. The fund has returned 4.9% and 10.9% over the past one-month and three-month periods, respectively (read: Is it Australia's Turn for a Downgrade? ETFs in Focus).
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 $10 million in its asset base since its inception and charges 54 bps in annual fees. Volume is paltry as it exchanges 7,000 shares on an average daily. This Zacks ETF Rank #3 fund has returned 1.4% and 2.5% over the past one-month and three-month periods, respectively.
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Reserve Bank of Australia Cuts Rate Again: ETFs to Watch
The Reserve Bank of Australia (RBA) reduced cash rate for the second time in the past four months with an objective to help the economy grow at a faster pace and inflation to pick up. Though the Australian central bank expressed its concerns that inflation may remain low in the next two years or more, the bank thinks that the economy has potential to record strong growth.
ETFs with significant exposure to Australian securities are poised to remain on investor radar in the days ahead as the impact of the central bank’s easing policy will be watched closely.
Second Rate Cut in 4 Months
The minutes from the RBA’s policy meeting on Aug 2 showed that the central bank cut the cash rate to 1.5%, reducing it by 25 basis points. This was the second time in the last four months that the RBA cut the rate to boost the economy. Per the minutes, policy makers “noted that while prospects for growth were positive, there was room for stronger growth, which could be assisted by lower interest rates.”
However, the central bank didn’t clear the air about any further cuts this year. However, it is speculated that there lies a 50% chance of another rate cut this year. Analysts expect that the movement of inflation rate will play a crucial role in the rate cut decision. According to the minutes, “Members noted that the recent CPI data had confirmed that inflation was likely to remain low for some time.” It also added: “There continued to be considerable uncertainty about momentum in the domestic labor market and the extent to which domestic inflationary pressures would rise over the next few years.”
Moreover, the central bank showed concerns about a sluggish Chinese economy, which is the largest trading partner of Australia. The RBA said: “The outlook for the Chinese economy remained an important source of uncertainty for global growth and the demand for commodities” (read: Australia ETFs in Focus on Likely Snap Elections)
Will the Rate Cut Boost the Economy?
The policy members remained dovish about the economy’s growth in the days ahead. Though RBA expects GDP growth in the second quarter to be “more modest” compared to the first quarter’s encouraging annualized GDP growth rate of 3.1%, which was primarily led by strong increase in exports, economic growth is anticipated to increase next year. Moreover, labor market condition is also expected to improve gradually. The policymakers feel that favorable growth condition next year will boost the addition of jobs. Also, “the unemployment rate was expected to fall marginally over the forecast period” (read: Is It Time to Invest in Australian ETFs?).
Moreover, RBA said that concerns regarding “rising household sector leverage and rapid gains in housing prices had diminished.” The minutes also highlighted that these encouraging factors led “the Board, on balance judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.”
Australia ETFs in Focus
We have highlighted three ETFs that have notable exposure to securities from Australia and are poised to remain in focus in the near term (see: all Developed Asia-Pacific ETFs here).
iShares MSCI Australia (EWA - Free Report)
This ETF is the most popular and liquid choice in its space with an AUM of $1.7 billion and an average daily volume of more than 2 million shares. This fund provides exposure to a basket of 72 Australian stocks by tracking the MSCI Australia Index. The product charges 48 bps in fees per year from investors. From a sector perspective, the fund is slightly skewed toward the financial sector with more than half of its assets allocated to it while materials takes the second spot with a double-digit exposure. This fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. The fund has returned 2.5% and 6.7% over the past one-month and three-month periods, respectively.
WisdomTree Australia Dividend ETF
This product tracks the WisdomTree Australia Dividend Index. In total, it holds 65 securities with more than one-fourth of its assets allocated to the top 10 holdings. AUSE has an AUM of $37.4 million and light average daily volume of around 2,000 shares. Sector wise, financials takes the top spot at 23.1% while materials, consumer discretionary and industrials round off the top four. The ETF charges 58 bps in annual fees. It also has a Zacks ETF Rank #3 with a Medium risk outlook. The fund has returned 4.9% and 10.9% over the past one-month and three-month periods, respectively (read: Is it Australia's Turn for a Downgrade? ETFs in Focus).
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 $10 million in its asset base since its inception and charges 54 bps in annual fees. Volume is paltry as it exchanges 7,000 shares on an average daily. This Zacks ETF Rank #3 fund has returned 1.4% and 2.5% over the past one-month and three-month periods, respectively.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>