I recently published an article on why I’d not invest in ETFs. In that article I also discussed the reasons to actually invest in an ETF
as well. One big reason can be that you want an exposure to the
stocks in a country that you don’t necessarily know well enough to pick
individually. One such country would be Australia. Australia has the big 4
banking corporations which are considered solid: Commonwealth Bank of Australia,
WestPac Banking Corp, ANZ and National Australia Bank Ltd. These corporations
usually have yields that fall under my desired range of yields. But to pick one
stock out of these would require a lot of research. The second biggest sector
in Australia would be Materials, again a sector where it is tough for me to
pick up individual stocks. Hence, I decided to invest in an Australia focused
ETF. Australia also has a dividend withholding tax which dampens the initially
high looking yields.
I considered three ETFs to invest in Australia: EWA
(iShares MSCI Australia ETF), AUSE (WisdomTree Australia Dividend Fund) and FAUS
(First Trust Australia AlphaDex Fund). As my primary aim is to generate income,
all these three funds have a dividend yield of over 4% which satisfies my
criteria. Do note that this is on a pre-tax basis.
*as of 22-Nov-2013
Parameters
|
EWA
|
AUSE
|
FAUS
|
AUM (mil USD)
|
2073
|
58
|
1.6
|
Expense Ratio
|
0.53%
|
0.58%
|
0.80%
|
Inception Date
|
12-Mar-96
|
16-Jun-06
|
15-Feb-12
|
Dividend Yield
|
5.50%
|
4.08%
|
4.70%
|
Number of Holdings
|
72
|
65
|
42
|
% Assets in Top 10 Holdings
|
60.19%
|
27.98%
|
41.98%
|
PE Ratio
|
14.95
|
15.65
|
n/a
|
Standard Deviation
|
1.37%
|
3.53%
|
n/a
|
Sector
|
EWA
|
AUSE
|
FAUS
|
Financial Services
|
42.48%
|
19.94%
|
7.42%
|
Basic Materials
|
16.93%
|
15.39%
|
18.70%
|
Consumer Defensive
|
9.49%
|
15.98%
|
9.98%
|
Real Estate
|
7.44%
|
0.00%
|
10.09%
|
Energy
|
5.73%
|
7.62%
|
8.04%
|
Industrials
|
5.34%
|
11.25%
|
12.42%
|
Health Care
|
4.30%
|
6.44%
|
7.77%
|
Consumer Cyclical
|
2.83%
|
13.10%
|
13.19%
|
Communication Services
|
2.01%
|
3.70%
|
6.03%
|
Utilities
|
1.50%
|
2.94%
|
2.51%
|
Technology
|
0.79%
|
3.64%
|
3.33%
|
Market Cap Breakdown
|
EWA
|
AUSE
|
FAUS
|
Giant
|
50.61%
|
19.79%
|
2.40%
|
Large
|
32.92%
|
27.56%
|
24.81%
|
Medium
|
11.06%
|
50%
|
70.57%
|
Small
|
0.00%
|
0.00%
|
0.00%
|
Micro
|
0.00%
|
0.00%
|
0.00%
|
Clearly EWA has been around for a while and has large AUM (2B)
compared to very small for AUSE (58M) and FAUS (2M). Expense ratio is also the
smalles for EWA at 0.53%. While FAUS and AUSE have more diversified sector exposure, their
exposure to medium cap stocks is quite large for my appetite. EWA is a bit
concentrated on Financial Services and Basic Materials. But they are the stocks
that will do well when the economy picks up especially demand from emerging
markets. Finally the PE ratio is most attractive for EWA, and standard
deviation (1.37%) is also much better than AUSE (3.53%). I’m expecting FAUS to
be on the higher side too given such high exposure to medium cap stocks. EWA
would not be the pick for those who are not comfortable with such large
exposure to Financials. But given my portfolio so far has exposure to only
Utilities and Pharma, I’m quite comfortable with this. EWA would be my top pick
here.
I bought 31 units of EWA on for $25.64/unit on 22-Nov-2013 for my Zen Fund.
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