This is an overview for international investors on why and how to invest in Australia via American Depository Receipts (ADRs), index funds, ETFs and direct investing.
First I should confess I am a half cast. I come from two generations of Australian mothers and New Zealand fathers and my life imitates theirs. Growing up in New Zealand I firmly believed Australia was a great place…except for all the Australians. As a child I rejoiced when the then Prime Minister of New Zealand, Sir Robert Muldoon, responded to a question about New Zealanders migrating to Australia by saying “Kiwis migrating to Australia raised the average IQ in both countries.”
Twenty three years on, living with an Australian gal and kids who want to play Australian Rules Football, I like the place. I quickly found Austalians weren’t that bad after all and once you’ve had a few beers even their nasal accents are no longer grating. Australia a beautiful country and the people are relaxed and friendly.
Donald Horne in The Lucky Country said the following about Australia.
“Australia, is run mainly by second-rate people who share its luck. It lives on other people’s ideas, and, although its ordinary people are adaptable, most of its leaders (in all fields) so lack curiosity about the events that surround them that they are often taken by surprise. A nation more concerned with styles of life than with achievement has managed to achieve what may be the most evenly prosperous society in the world. It has done this in a social climate largely inimical to originality and the desire for excellence (except in sport) and in which there is less and less acclamation of hard work. According to the rules, Australia has not deserved its good fortune.”
This is the lucky country and investing in Australia provides international investors a chance to sit at our table and feast on our easy bounty.
But where should international investors start looking for exposure to Australia? ETFs and ADRs are favoured by many. While both are valid options and I will discuss them, to me that’s like walking into Japanese restaurant and only ever ordering a bento box. There is so much more on offer and in our ever shrinking world it’s pretty easy to get your hands on a wide range of delicacies.
Why Invest in Australia
The Department of Foreign Affairs and Trade, DFAT, hits most of the high notes; economic strength, a global financial services industry (more on that in a moment), democratic and stable, highly skilled workforce, 30% flat corporate tax rate and don’t forget the early bird gets the worm and we get up each day before everyone in the world (except the Kiwis, but they don’t count).
When thinking about investing in Australia most international investors first think of mining. They may be surprised to find that “Australia’s economy is now a service-based economy, with service industries accounting for around 70 per cent of total gross value added. The finance and insurance industry is larger than the booming mining sector…”
Here’s what our Prime Minister, or Prime Nerd as he is called in my house, said in a major daily newspaper last weekend. “Australia is performing better than most other economies, with the fastest growth, the second lowest unemployment and the lowest debt and deficit of all the major advanced economies. And we remain the only advanced economy not to have gone into recession, so stuff that in your pipe and smoke it.” Yeah OK, I added that last bit, but he’s right, Australia rocks! I know some of you don’t like vague statements like ‘performing better’, so cop a look at the chart below.
Check back in a few days for more charts!
While all that’s nice, let’s be honest. The main reason you should consider investing in Australia is to diversify out of your failing empire, be that Great Britain, USA or one of those once great European nations.
Your proliferate ways have sealed your demise, so bring your money over here where the gravy train will continue for a bit longer and you can ride the mining, banking and consumption carriages all the way to the end of the line.
Let’s begin with the easiest way to buy your ticket for the Australian Gravy Train and then move on to some direct alternatives.
How To Invest In Australia
Australian Index Funds and ETFs
Pre-packaged bento box it is. Whether you’re a top investors who regularly outperforms their local bourse or an amateur, you’ll probably struggle to outperform the Australian Indices from your desk on the other side of world.
There are three Australian ETFs available from State Street Global Advisors; SFY for S&P/ASX 50 Fund, STW for S&P/ASX 200 Fund and SLF for S&P/ASX 200 Listed Property Fund. Read more.
iShares produce the MSCI Australia Index Fund (EWA).
Investors in any of these products need to be aware of the weighting of BHP and the top four banks; CBA, ANZ, NAB and WBC. Combined they make up 41% of the ETF, with BHP alone making up over 15%. For those looking for a play on the secular mining boom, then Australia is certainly the right country, but index funds like EWA only give you limited exposure to mining. With 41.5% in Financials, EWA is more a play on banking than mining which has a 26.1% weighting this ETF. Read more
(once again, more on this later – this is a working document)
American Depository Receipts (ADRs)
Here’s a full list of America Depositry Receipts (ADRs) and Pink Sheets/Over the Counter (OTC) for Australian Stocks. It’s a fairly long list, but many are thinly traded and of a more speculative nature.
Here’s the financial visualisation of Australia by Finviz.com. There is a lot more to Australian shares than represented by the image; that’s a topic for another day.
Direct Investing on the ASX
The easiest way for international investors to invest directly in Australia is to use a broker such as Interactive Brokers (IB). IB provides easy access to most international stock exchanges including the ASX. Note that IB does pass through real time data costs which are around $49/month for ASX data, IIRC. You’re probably better opting for no real time data and using delayed quotes from another source or market orders. Besides the real time data costs the transaction costs on IB are incredibly low, it is cheaper for me to use IB, to buy Australian shares, than a local online broker.
(and again more on this later)