The WisdomTree Australia Dividend Fund (AUSE) offers up a very hefty annualized dividend yield of 6.02% and a one-year return of 21.01% with 10.87% YTD. AUSE is an attractive ETF for dividend investors not only because of its yield and stellar recent returns, but also for its mix of holdings and where those holdings reside.
The country offers political stability and vast mineral resources. It's government debt to GDP is 20.70%. In comparison, India's is 68.05%, Indonesia's is 23.10%, and the U.S. government debt to GDP is 101.60%.
But most important for Australia with implications for AUSE is the just announced news that Australia and China have agreed to allow each other's currencies to be directly converted, effective April 10, 2013. Until now, only the U.S. dollar and the Japanese yen were directly interchangeable with the yuan.
This gives the Australian dollar new stature within the region and beyond and will nourish the already expanding trade links between China and Australia. Currently about 20% of Australia's exports go to China, with two-way trade in goods-and-services between the countries valued at 133 Billion USD for the 2011-2012 financial year.
Holdings: AUSE comes with an expense ratio of 0.58% and 64 holdings tracking the fundamentally weighted WisdomTree Australia Dividend Index. The Index is comprised of dividend paying companies incorporated in Australia with a minimum market capitalization of $1.0 billion. The index is comprised of the ten largest qualifying companies from each sector ranked by market capitalization.
Top five holdings:
- Seven West Media Ltd. (SWM) 4.93%
- WestPac Banking Corp (WBC) 3.70%
- TabCorp Holdings Ltd. (TAH) 3.55%
- National Australia Bank Ltd. (NAB) 3.40%
- Telstra Corp Ltd. (TLS) 2.92%
Holdings in the fund are divided into ten sectors of varying weights:
- Banks 11.68%
- Consumer Services 10.84%
- Materials 8.85%
- Insurance 8.03%
- Food & Staples Retailing 7.98%
- Media 7.76%
- Energy 6.51%
- Health Care Equipment & Services 5.57%
- Telecommunication Services 4.44%
- Commercial & Professional Services 4.27%
A high annual yield of 6.02%
This is a mid-cap holding stabilized by an equally or most-oftentimes equal large-cap component. This has proved to be a good mix for potential growth.
It's an ideal holding for dividend-seeking investors wishing to add foreign diversification to their portfolios. And with the recently signed agreement between Australia and China to allow each other's currencies to be directly converted, trade between these two countries is expected to expand.
While AUSE is linked to a dividend-weighted index, that index is unlike many other dividend-seeking indexes that usually tilt toward certain sectors of the market such as financials and utilities. The WisdomTree Australia Dividend Index follows a fundamentally weighted index that spreads the ten largest qualifying companies over ten different sectors to provide for a more balanced portfolio.
Several of the sectors covered by the fund are defensive, namely Health Care Equipment & Services (5.57%), Food & Staples Retailing (7.08%), and to a lesser extent Consumer Services (10.84%).
Australia benefits greatly from rapidly growing trade relationships within Asia, most especially with China, Korea, Japan, and India. However, if demand from these markets slows, Australia's economy will suffer.
Volatility may be greater for this ETF compared to most comparable-sized U.S. domestic equity ETFs. Investors holding this ETF should prepare for the long-term to get the most out of their investment.
This is a country ETF, which by it's very nature is concentrated. As the country goes, so may go this fund. To understand the volatility of AUSE here are its year-by-year returns: 2007 (+19.71%), 2008 (-46.41%), 2009 (+76.22%), 2010 (+12.74), 2011 (-10.92), 2012 (+20.22%).
Other Australia ETFs Worth a Look :
The iShares MSCI Australia Index (EWA), with an annualized dividend yield of 5.02%, is more heavily invested in Australia's large banks (50.39% of its holdings) and large-cap mining companies and thus has been more sensitive to downturns. It sports a 0.51% expense ratio.
A third, more recently launched option is the First Trust Australia AlphaDEX (FAUS) with a annualized dividend yield of 4.48%. This Australia ETF uses the enhanced AlphaDex indexing system an index that may be described as part passive/part active. Performance: YTD: 7.18%, 1-Year: 18.14%. Expense ratio is a hefty 0.80%.