Australia ETFs In Focus On Record Highs

Australia’s All Ordinaries Index, which tracks the country’s 500 largest stocks, touched a 10-year high on strong commodity prices. It crossed the 6000 mark for the first time in a decade.

The S&P ASX 200 touched 5,965, hitting a 2017 high and inching closer to the 2015 high of 5,996.90.

What’s Driving the Markets?

Global economic activity seems to be picking up as the International Monetary Fund (IMF) estimates 3.6% and 3.7% growth in 2017 and 2018, respectively, compared with 3.2% in 2016.

Industrial Metals have been rebounding on greater global optimism. This is primarily due to robust global growth cues and strong demand. Manufacturing has been picking up pace globally and driving demand for metals.

Rich in natural resources, the Australian economy is hugely dependent on commodity trade. The metals and mining sector makes a significant contribution to Australia’s GDP growth.

Prices have been gaining steam since the second half of 2017. SPDR S&P Metals & Mining ETF (BE:XME) is up 4.3% so far this year, while it has gained 10.2% in the trailing six months. VanEck Vectors Steel ETF (AX:SLX) on the other hand is up 12.9% so far this year, while it has gained 16.5% in the trailing six-month period. Nickel being a key raw material in lithium batteries, has been gaining owing to growing popularity of electric cars. iPath Bloomberg Nickel Subindex Total Return ETN JJN is up 27.9% so far this year, while it has gained 44.4% in the trailing six-month period.

Economic Data

Per the Australian Bureau of Statistics, the country’s headline consumer price index (CPI) increased 0.6% in the third quarter sequentially and 1.8% on a year-over-year basis. Australia’s housing price growth seems to have stalled, as prices fell in October (read: Australia ETFs in Focus as Rate Hike Hopes Fade).

Australia’s GDP grew 0.8% sequentially in the second quarter of 2017 and 1.8% from the prior-year quarter, marking the country’s 26th year without a technical recession. However, the IMF in its latest world economic outlook stated that it expects the Australian economy to expand a mere 2.2% this year compared with its April forecast of 3% (read: ETFs in Focus as IMF ups Global Growth Forecast).

Let us now discuss a few ETFs focused on providing exposure to the Australian economy (see all Asia-Pacific (Developed) ETFs here).

IShares MSCI Australia Index Fund 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 $1.8 billion and charges a relatively moderate fee of 48 basis points a year. From a sector look, Financials, Materials and Real Estate are the top three allocations of the fund, with 42.3%, 16.9% and 8.3% exposure, respectively (as of Nov 1, 2017). Commonwealth Bank Of Australia, Westpac Banking Corporation and BHP Billiton (LON:BLT) Ltd are the top three holdings of the fund, with 10.2%, 8.5% and 6.7% allocation, respectively (as of Nov 2, 2017). The fund has returned 13.0% year to date and 14.8% in a year (as of Nov 3, 2017). EWA currently has a Zacks ETF Rank #3 (Hold) 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 $37.4 million and charges a fee of 58 basis points a year. From a sector look, Financials, Consumer Discretionary and Basic Materials are the top three allocations of the fund, with 23.8%, 16.2% and 13.8% exposure, respectively (as of Nov 3, 2017). Harvey Norman Holdings Ltd, National Australia Bank Ltd and Westpac Banking Corporation are the top three holdings of the fund, with 3.7%, 3.1% and 3.0% allocation, respectively (as of Nov 3, 2017). The fund has returned 12.0% year to date and 14.6% in a year (as of Nov 3, 2017). AUSE currently has a Zacks ETF Rank #3 with a Medium risk outlook.

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