Capturing Australia via ETF, ADR or CEF

Roger Nusbaum submits: A reader asked about using the WisdomTree DIEFA High Yielding Equity Fund (DTH) as a proxy for Australia.

Australia is a commodity-based economy. Because of that there is the expectation that it would have a different economic cycle than in the US. It stands to reason that the stock market cycle would then be different as well. That is why I own the country.

I did not find the country weights on the WisdomTree site but ETFconnect has it at 11.75% for Oz. The largest country weight is the UK which is 33%. The UK is heavier in materials than you might think, iShares UK (EWU) has an 8% weight but the top holdings in DTH don't have a lot of commodity-based exposure. There is a fair bit of energy names in DTH but I think I would differentiate between energy and materials where Australia (or a proxy for) is concerned.

The largest commodity or commodity-based stock is Commonwealth Bank of Australia at 1.23% but that is just the 17th largest holding.

I don't think DTH will end up being a proxy for Australia but there is not enough track record yet to know. This has nothing to do with the merits of the fund. For low beta, big cap, high yielding foreign exposure it looks good at first glance.

There is an Australian ETF (EWA), plenty of ADRs and a CEF or two as well. Most of my clients own Australia New Zealand Bank (ANZ) or iShares Australia (EWA), which is also a personal holding.

Comments

[jest:]

roger-

quick question about the rationale of int'l dividend funds, such as DTH.

if the income is taxed at 15% overseas before getting taxed again domestically, what is the benefit of the DTH product, from an income perspective?

yes, you can get the int'l tax written off in a taxable account, but for an IRA (or the taxable account for that matter) isn't DVY a better choice than a typical int'l dividend OEF or ETF? it seems like a lot of trouble and effort for just slightly more yield.

2006 Aug 25 11:41 PM

[Roger Nusbaum:]

Generally, most foreign ETFs tax at 15% for divs but I am not certain about WisdomTree.

As DVY is domestic and DTH is foreign, no DVY is not better. They capture different things. I'm not sure its more trouble, it is right there in one product.

You not like foreign now or ever in which case DTH makes no sense but I absolutely want foreign exposure personally and for clients. I do not own DTH, I don't know if I ever will. The point is to create awareness of the product as it could be a great hold, that is up to the individual.

2006 Aug 27 02:39 PM