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Long only, value, long-term horizon, dividend investing
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Foreign markets are always a wild card in the investor's portfolio. When I first started buying into equities, the extent of my quest to diversify my portfolio was to buy one stock in different sectors. Recently, notable investors - specifically, Kevin O'Leary - have spoken about the need to invest in different jurisdictions as well. I looked for a jurisdiction that was relatively low-key in the media- so Europe, Japan, and China are automatically out. The huge thing I looked for was a jurisdiction with some GDP growth. Among other small factors, I found Australia, and I found the iShares MSCI Australia ETF (NYSEARCA:EWA).

Australian Economy Highlights

Australia's economy is known to investors as having a strong per capita income, low unemployment, low budget deficit and economic freedom. The 2013 Index of Economic Freedom ranked Australia as the third freest out of 41 countries in the Asia-Pacific region with a score of 82.6. Because of the proximity of countries in the Asia-Pacific region, Australia neighbors New Zealand, Singapore, Japan, and South Korea.

Australia is also a major exporter of agricultural commodities, energy products, and industrial materials. The economy has started to feel the hit from falling commodity prices and slowing industrial production from China.

In 2011, the economy posted a 1.3% GDP growth and in 2012, a 3.2% GDP growth, and has not had a recession for 21 years and reported a trade surplus of AUD 9M in June 2012.

Stock Market Performance

The ASX 200 is the nation's benchmark stock market index. In 2012, the telecommunications, healthcare, and financial sectors were the best-performing sectors. However, energy, materials and industrial sectors lagged due to their focus on commodities. In the one-year basis, the Australian index was down by 5.42%.

The iShares MSCI Australia ETF

The EWA was launched in March 1996, and invests in the broad Australia market with $2.41B in assets under management - investing in 70 different stocks. EWA charges an expense ratio of 50 basis points and pays out a 6.35% dividend yield.

The sector breakdown includes financials (50.57%); materials (17.58%); consumer staples (9.41%); energy (5.71%); industrials (5.20%); healthcare (4.47%); S-T securities (2.47%); telecommunications (2.05%); consumer defensive (1.75%); and utilities (1.51%). Their top 10 holdings account for 60.53% of the fund's holdings.

Top 10 Holdings

  • CWLTH Bank FPO (CBA.AX) - 10.96%

  • BHP Billiton Ltd (BHPLF.AX) - 10.19%

  • Westpac FPO (WBC.AX) - 7.74%

  • Australia and New Zealand Banking Group Limited (ANEWF.AX) - 6.93%

  • Nat. Bank FPO (NAB.AX) - 6.93%

  • Woolworths Limited (WOLWF.AX) - 4.08%

  • Wesfarmer FPO (WES.AX) - 4.00%

  • CSL FPO (CSL.AX) - 3.11%

  • Westfield Group (WEFIF.AX) - 2.42%

  • Woodside Petroleum Limited (WOPEF.AX) - 2.29%

EWA Performance

  • 52-week range of 21.23 to 28.15

  • Year-to-date market return is -8.07%

  • 1-year total return is 9.57%

  • 3-year total return of 11.47%

Risk

3 Years

Statistic

EWA

Category

Alpha (against Standard Index)

0.12

N/A

Beta (against Standard Index)

1.18

N/A

Mean Annual Return

1.12

N/A

R-squared (against Standard Index)

78.72

N/A

Standard Deviation

24.39

N/A

Sharpe Ratio

0.54

N/A

5 Years

Alpha (against Standard Index)

3.87

N/A

Beta (against Standard Index)

1.18

N/A

Mean Annual Return

0.52

N/A

R-squared (against Standard Index)

83.65

N/A

Standard Deviation

29.59

N/A

Sharpe Ratio

0.20

N/A

10 Years

Alpha (against Standard Index)

4.23

N/A

Beta (against Standard Index)

1.19

N/A

Mean Annual Return

1.23

N/A

R-squared (against Standard Index)

81.76

N/A

Standard Deviation

N/A

N/A

Sharpe Ratio

N/A

N/A

Treynor Ratio

9.08

N/A

I'm Bullish!

I believe that EWA is getting a bad rap because of the economic concerns of the rest of the world, and therefore has fallen into oversold territory on June 20, 2013, but has since rebounded. EWA is still pretty close to its 52-week high and given the government fundamentals going on in Australia, I don't see a legitimate reason to dump EWA - instead I say buy more. Granted, this year EWA has taken a hit, so I say if you want to go long on EWA, you should consider going longer than a year or two. If your time horizon is any less than that, I wouldn't play EWA.

Source: How And Why I'm Long Australia