Down Under Opportunity With Australia ETFs

Considering that commodities prices are rebounding, helping drive a similar scenario for emerging markets equities, Australia exchange traded funds are disappointing this year. For example, the iShares MSCI Australia ETF (NYSEArca: EWA), the largest U.S.-listed Australia ETF is flat on the year.

Like so many developed market central banks, the Reserve Bank of Australia (RBA) has been actively reducing borrowing costs in recent years. Australia’s benchmark lending rate is currently 2.25%. That is a record low for the world’s 12th-largest economy, but high by the standards of the rest of the developed world.

Thanks to comparatively high interest rates, Australia ETFs like EWA sport enticing dividend yields, which can help investors generate current income while expanding the international portions of their portfolios. EWA has a trailing 12-month dividend yield of 6%, or nearly triple the comparable yield on the S&P 500.

EWA “tracks the market cap-weighted MSCI Australia Index, which encompasses approximately 85% of the total Australian equity market, except for small-cap companies. The fund is ordinarily 90% or more invested in the 70+ stocks that make up the underlying index, or in depositary receipts that represent stocks contained in the index. Financial services sector stocks account for the bulk of the portfolio, comprising 44% of the portfolio’s assets,” according to Investopedia.