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Australian ETFs in Focus after Jobs Data Fails to Impress

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Australian labor market conditions failed to meet expectations in October following back-to-back declines in August and September. According to the Australian Bureau of Statistics, employment rose by 9,800 in the month. However the figure was well below forecasts of an increase of 16,000. Although, the jobless rate was 5.6% lower than economists’ forecast of 5.7%, workforce participation fell to a decade low.

However, on a positive note, full-time jobs increased 41,500, a turnaround from a decrease of 74,300 in September. Additionally, an increase in total number of hours worked was also observed.

The disappointing jobs data could pose a challenge to the country’s central bank, which has left interest rates unchanged at 1.5% since August. The Reserve Bank of Australia (RBA) reduced the cash rate in August 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 (read: Reserve Bank of Australia Cuts Rate Again: ETFs to Watch).  

Meanwhile, Trump’s triumph doesn’t appear to be good news for Australia. The Obama administration was in the process of negotiating the Trans-Pacific Partnership or pan-Pacific trade agreement among 12 nations of the Pacific Rim. Countries like Japan and Australia are part of this. But Trump finds this deal not in the best interest of America (read: Foreign ETFs to Win or Lose on Trump Victory).

Despite the heightened uncertainty and other challenges, ETFs with significant exposure to Australian securities are poised to remain on investors’ radar in the days ahead

ETFs in Focus

iShares MSCI Australia ETF (EWA - Free Report)

EWA tracks the MSCI Australia Index and holds 72 stocks in its basket. The top two firms have one-fifth allocation while other firms hold less than 7% share in the basket. From a sector look, financials dominates the fund’s return at 42.8%, followed by materials (16%). This fund has an AUM of $1.7 billion and average daily volume of more than 2.4 million shares. It charges 49 bps in annual fees and has gained 7.8% so far in the year (as of November 16, 2016). It has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook (read: Is it Australia's Turn for a Downgrade? ETFs in Focus).
WisdomTree Australia Dividend Fund (AUSE - Free Report)
This fund follows the WisdomTree Australia Dividend Index. It has an AUM of $36.1 million and trades in paltry volume of 2,000 shares a day on average. Expense ratio comes in at 0.58%. Holding 63 stocks in its basket, the product is widely diversified as none of the components holds more than 4% of the assets. Sector-wise, it has a definite tilt toward financials at 23.8%, followed by materials (22.8%), consumer discretionary (13.7%) and industrials (10.1%). The fund has gained 16.7% so far this year and has a Zacks ETF Rank of 3 with a Medium risk outlook.

iShares Currency Hedged MSCI Australia ETF (HAUD - Free Report)
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 $10.0 million in its asset base since its inception and charges 54 bps in annual fees. Volume is paltry as it exchanges 1,500 shares on an average daily basis. It has gained almost 3% so far this year. The fund has a Zacks ETF Rank of 3 with a Medium risk outlook (see all Asia-Pacific Developed ETFs here).

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