Warren Buffett has put his stamp of approval on Australia’s outlook, and investors who want exposure to the market can look through a number of country-specific exchange traded funds.
Buffett stated that he will spend over $2 billion per year to build out an Australian equities portfolio, reports Nyshka Chandran for CNBC.
“If you come back in two or three years, you will find we have got four or five Australian equities,” Buffett told CNBC. “There is money to be made in Australian equities over the next 10, 20, 30 years … If we get something we feel comfortable with, we will stick with it for a very long time.”
Long-term investors can also tap into the Australian equities market through broad country-specific ETFs. For instance, the iShares MSCI Australia ETF (NYSEArca: EWA) is the largest option available, with $1.6 billion in assets. Moreover, Australian stocks offer attractive yields for income-seeking investors – EWA even comes with a 4.8% 12-month yield.
Additionally, the WisdomTree Australia Dividend Fund (NYSEArca: AUSE) targets dividend paying stocks, and it is comprised of the 10 largest qualifying companies from each sector ranked by market-cap. AUSE has a 3.97% 12-month yield.
The newer SPDR MSCI Australia Quality Mix ETF (NYSEArca: QAUS) emphasizes the quality factor, which captures excess returns to stocks that are characterized by low debt, stable earnings growth and other ‘quality’ metrics.
The First Trust Australia AlphaDEX Fund (NYSEArca: FAUS) selects Australian companies based on growth factors including 3-, 6- and 12-month price appreciation, sales to price and one year sales growth, along with value factors including book value to price, cash flow to price and return on assets.
Additionally, investors can also focus on smaller Australian companies through the iShares MSCI Australia Small-Cap Index Fund (BATS: EWAS) and IQ Australia Small Cap (NYSEArca: KROO).
Goldman Sachs also argued that the Australia’s market looks attractive as the benchmark S&P ASX 200 begins to recover from a three-month sell-off.
“Value looks as good as it has in a decade,” Goldman Sachs strategist Matthew Ross said in a note, pointing out that Australian stocks are 10% undervalued relative to other developed markets like the U.S., Europe and Japan. “At 15.8 times price-to-earnings, Australia also trades at a 9 percent discount to MSCI World – well below its 1 percent average premium and just shy of its largest discount in a decade.”
For instance, EWA is trading at a 16.7 price-to-earnings ratio and a 1.9 price-to-book, whereas the S&P 500 index shows a 18.4 P/E and a 2.6 P/B.
Moreover, Evan Lucas, market strategist at IG, believed that improved fundamentals, such as improved earnings, should help support higher valuations in Australia.
For more information on Australia, visit our Australia category.
Max Chen contributed to this article.