Kiplinger\'s Personal Finance - 10.2019

32 KIPLINGER’S PERSONAL FINANCE^ 10/2019

INVESTING

expense ratio of 0.47%, the ETF has

a portfolio that is heavily weighted

toward financial stocks, which ac-

count for 38% of assets, compared

with just 13% for the S&P 500.

Banking on financials. Concentration in

financials should pay off if Australia’s

economy continues on an solid upward

course. Although bank profits are in-

f luenced by interest rates (especially

by the difference between long- and

short-term rates), they are also af-

fected by the prosperity of the nation

in which the banks are headquartered.

MSCI Australia is f lush with excel-

lent banks. I like WESTPAC BANKING (WBK,

$19), whose shares trade here as Ameri-

can depositary receipts, with a market

value of $66.4 billion. Founded in 1817,

Westpac is heavily focused on Austra-

lia, but it has branches in China, India,

Hong Kong and Singapore. The share

price has been stagnant for four years,

but the stock yields a whopping 6.9%.

Another 17% of the ETF’s assets

reside in basic materials companies,

such as the giant BHP GROUP (BHP, $51),

Australia’s largest public company,

with a market value of $127.6 billion.

BHP mines copper, silver, uranium,

gold, coal and iron ore and develops

oil and gas. The stock (an ADR) has

doubled in the past three years, but

the firm is heavily dependent on global

commodity prices, and it still trades

far below 2014 levels. It yields 4.7%.

A top-10 holding of the fund, WOOL-

WORTHS GROUP (WOLWF, $24), owns Austra-

lia’s largest grocery chain, as well as

1,545 liquor stores, a discount chain

and 323 hotels. (The stock trades in

the U.S. only as an “other OTC” stock

and is bought through specialty bro-

kers.) Woolworths is a great way to

buy into the country’s economy as a

whole. Unlike most retailers, it pays

a nice dividend; it currently yields 3%.

Another fund choice is ABERDEEN

AUSTRALIA EQUITY (IAF, $5), a closed-end

fund launched in 1985 and managed

by a team in Sydney. It can be bought

and sold like a stock or ETF on U.S.

exchanges. The fund trades at a 9.1%

discount to the market value of the

shares it owns—a seeming bargain.

But discounts can persist for years.

Most of the fund’s stocks trade in

the U.S. as “other OTC” stocks. The

portfolio is led by COMMONWEALTH BANK

OF AUSTRALIA (CMWAY, $54). With a market

cap of $94.6 billion, it yields 5.8%.

AUSTRALIA IS NOW IN ITS 29TH CONSECUTIVE YEAR OF ANNUAL

ECONOMIC GROWTH, AND YET ITS STOCK MARKET LOOKS CHEAP.

Other interesting companies in the

portfolio include COCHLEAR (CH E OY, $ 7 1),

the world’s largest maker of implant-

able hearing solutions, and TELSTRA

(TLSYY, $14), a telecommunications firm.

Another alternative, FIRST TRUST

AUSTRALIA ALPHADEX (FAUS, $31), is a tiny

ETF that focuses on smaller stocks in

a Nasdaq index. The portfolio includes

IDP EDUCATION (IEL.AX), which trades only

on Australian exchanges. (You can

purchase shares through a U.S. broker

who deals in international stocks. The

recent price of $19 Australian converts

to about $13 U.S.) The firm places for-

eign students in universities—a hot

business ref lecting Australia’s appeal

and its diversity. Australia has become

an educational magnet, especially for

students from China and India. For-

eigners make up 20% of college stu-

dents in Australia, compared with 5%

in the U.S. Shares of IDP have more

than tripled in less than two years.

But you don’t have to own IDP as

an individual stock. The First Trust

ETF itself, despite an expense ratio

on the high side at 0.80% and a dispir-

iting annual average five-year return

of 3.4%, is a good bet if you believe in

Australia. It’s better balanced—with

a higher share of tech, real estate and

energy stocks—than the iShares offer-

ing, and it has a dividend yield of 4.3%.

Why have Australia’s stocks been

so lackluster in a period of impressive

economic growth? And more impor-

tant, will they wake up? There’s no

guarantee, but I think they will as

investors look for stability in a time

of growing economic tension. In the

meantime, with their sound funda-

mentals and enticing yields, they are

logical additions to any portfolio. ■

JAMES K. GLASSMAN CHAIRS GLASSMAN ADVISORY, A

PUBLIC-AFFAIRS CONSULTING FIRM. HE DOES NOT WRITE

ABOUT HIS CLIENTS. HIS MOST RECENT BOOK IS SAFETY NET:

THE STRATEGY FOR DE-RISKING YOUR INVESTMENTS IN A TIME

OF TURBULENCE. REACH HIM AT [email protected].

WHAT’S IN

THE INDEX

Aussie Market

Financials account for

the lion’s share of the

MSCI Australia index,

followed by firms min-

ing and processing raw

materials. The index

has returned 14.7% so

far this year, but only

6.5% annualized over

the past 10 years.

As of August 9. Figures do not add up to 100% due to rounding. SOURCES: Morningstar Inc., MSCI Inc.

Information^38 %

technology

1 %

Utilities

Consumer

discretionary

Energy

Industrials

Communication

services

Consumer

staples

Materials

Health care

Real estate

17 %

10 %

6 % 8 %

6 %

6 %

(^2) %
2 %
5 %
MSCI Australia
sector weights
Financials