Looking Down Under For ETF Ideas
Investors are embracing ex-U.S. developed market equities and the corresponding exchange-traded funds this year. While much of that affinity is directed at Europe ETFs and funds tracking broader developed market indexes, investors might do well to remember Australia.
The iShares MSCI Australia Index Fund (ETF) (NYSE:EWA) and the WisdomTree Australia Dividend Fund (NYSE:AUSE) are both up more than 7 percent this year.
When we look at the underlying holdings within EWA, we see a heavy allocation to Financials (43 percent), followed by lesser sector exposures to Basic Materials (15 percent), Real Estate (9 percent), and so on throughout the portfolio, said Street One Financial Vice President Paul Weisbruch in a note out last week. Top individual holdings are as follows: 1) Commonwealth Bank of Australia (10.91 percent), 2) Westpac Banking Corp (8.41 percent), 3) Australia and New Zealand Banking Group Ltd (6.67 percent), 4) National Australia Bank Ltd (6.41 percent), and 5) BHP Billiton Ltd. (6 percent).
AUSE, the WisdomTree offering provides investors with some exposure to the Australian consumer, a theme that could improve as the interest rate environment there remains sanguine and the economy receives support from areas beyond materials and mining. AUSE allocates over 22 percent of its weight to consumer discretionary and staples stocks.
And New Zealand's ENZL...
Another tactical idea to consider among developed markets single-country ETFs is the iShares MSCI New Zealand Capped ETF (NYSE:ENZL). ENZL, the only ETF dedicated to stocks in New Zealand, is up nearly 9 percent year to date and has been less volatile than the rival EWA.
New Zealand has a much different look from a sector standpoint, as it is more evenly balanced than Australia from a market capitalization perspective. Utilities make up 18 percent of the portfolio, followed by a 16 percent weighting to Healthcare, a 14 percent allocation to Industrials, a 13 percent weighting to Telecommunications, a 10 percent slice allocated to Consumer Discretionary and so on throughout the portfolio, said Weisbruch.
One reason investors may want to examine Australia and New Zealand ETFs is yield. Outside of the U.S., these are two of the highest-yielding developed markets. Trailing 12-month dividend yields on EWA and ENZL are 3.6 percent and 4.4 percent, respectively.
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