Australia is known to be a commodity based economy. Over the last few years the Australian economy has outperformed many of its counterparties in the developed world. The abundant resources of coal, oil, iron ore, potash and zinc along with other commodities are the main economic drivers. Furthermore, close ties with the Asiatic region is also the reason of its emerging power. The stable financial system has paved ways for favorable Australian ETF market to gain access to the country.
Australian ETFs are available on the Australian stock exchange ASX since 2001. These ETFs are now covering a series of benchmark indices like the S&P/ASX 200 index, MSCI Australian shares Large Caps Index and the Russell 2000 index.
iShares MSCI Australia Index Fund (EWA) provides exposure to large cap Australian companies. Tracking the MSCI Australian Large Caps Index, it has an expense ratio of 0.52%. EWA has 44.3% holdings in financials, 26.4% in materials, 10.19% in consumer staples and 6.67% in energy. Major contributor to the assets of EWA is BHP Billiton making up 15% of the total assets.
IQ Australia Small Cap ETF (KROO) is another popular ETF that focuses on small cap Australian stocks. These are mostly involved in natural resources. KROO has heavier holding in industrial materials almost 39.3%, consumer discretionary about 19.92% and energy of 11%.
Although these two are the major player for the Australian ETF market, Vanguard has also recently ventured into the Australian ETF market. This will impact the growth market in the longer term. Vanguard Australian share ETFs are providing access to a range of companies listed in the ASX. These ETFs are planned to provide diversity to the portfolio of investors. The four ETF options for investors include:
- Vanguard Australian Shares Index ETF (VAS)
- Vanguard Australian Shares High Yield ETF (VHY)
- Vanguard MSCI Australian Large Companies Index ETF (VLC)
- Vanguard MSCI Australian Small Companies Index ETF (VSO)
Other ETFs with some asset allocation to Australia includes Wisdom Tree Pacific ex-Japan High Yielding Equity Fund (DNH) having 90.5% allocation to Australia, Wisdom Tree Pacific ex-Japan Total Div Report (DND) allocating 59.2% to Australia and PowerShares FTSE RAFI Asia Pacific ex-Jp Portfolio ETF (PAF) with 41.2% allocation to Australia.
BetaShares Capital Ltd is one of the leading ETF providers in Australia. it is the standard issuer of physical replication and synthetic replication ETFs in Australia. They are also participating in providing regulations for the ETF trading in ASX and ASIC. These standards will require the issuers of ETF to be assessed to provide advantage to the structure of ETF market.
Australian ETF market definitely has potential since the economy survived the market crash really well. There is more room for opportunities in sectors like real estate and agriculture. The market stability is suitable for fixed income securities as well.