Despite being the A in the very popular EAFE developed market index, most investors have little exposure to Australia outside funds like the iShares MSCI EAFE (NYSE:EFA). That’s a real shame as the nation continues to be emerging as Asia’s go-to spot for natural resources. With those developing markets still craving all matters of commodities, Australia makes for a prime spot for investment.

And despite recent market highs, Australia’s key resource sector is getting a major shot in the arm via a few key policy changes.

For investors, making a direct play for the “Land Down Under” could be one of the best bets for a portfolio in long run.

Natural Resources Get A Big Boost

Much of Australia’s fortunes stems from its vast commodity wealth and its prime location near emerging Asia. Rich in coal, natural gas and other minerals, the nation has become the exporter du jour for China and its neighbors in order to fuel their torrid growth. While some of the commodity “bubble” may have burst, the longer term picture still shows that Asia will need a plethora of commodities to fuel its needs.

That key resource production in the country recently got a few major boosts.

First has been the falling Australian dollar. The Reserve Bank of Australia (RBA) aggressively cut its key interest rate as the commodity cycle begun to slow. That’s caused the Aussie to fall over 15% this year to stand at less than 90 cents versus a U.S. dollar and is now sitting at a three-year low against the greenback. 

That’s key as a lower Aussie makes the nation’s exports more competitive on the global market. That in turn boosts profits at those large Australian miners who price their products in U.S. dollars. For example, mega-miner BHP Billiton (NYSE:BHP) realizes a $100 million Australian dollars in profit for every penny the currency falls versus the dollar. The RBA has already signaled that would reduce rates by another quarter point by the end of the year. 

Secondly, newly elected officials are giving the key Australian commodities sector another shot in the arm. Newly elected Prime-minister Tony Abbott has pledged to write off both the nation’s the carbon tax and the Minerals Resource Rent Tax (MRRT). The MRRT represented a tax on profits at some of the largest miners in the nation and was blamed for widespread mine closures and layoffs. 

All in all, the central bank forecasts that GDP growth for the nation will hit 2.7% in 2014 and 3% in 2015 based on the policy changes. That’s about double the mean estimates for the United States. 

Making A Play

Given the bullish expansion in its key basic materials sector, investors may want consider adding the land down under to a portfolio. While a few Aussie firms do trade on the big-boards- like James Hardie Industries (NYSE:JHX) and Westpac Banking (NYSE:WBK) –the nation is one of best bets to add via exchange traded funds (ETFs). Here’s some top choices.

The iShares MSCI Australia Index (NYSE:EWA) still remains the top choice for investors looking to add a swath of the country to a portfolio. The ETF spreads its $2 billion in assets across 70 different firms including Rio Tinto (NYSE:RIO) and retailer Woolworths. Basic materials and energy make up about 25% of the fund’s holdings making a good play on the nation’s continued resource growth. Expenses are also pretty cheap at 0.53%. Another opportunity, could be in the WisdomTree Australia Dividend (NASDAQ: AUSE), which weights its constituents by dividends paid. However, it should be noted that EWA pays a much heftier distribution than AUSE. 

Perhaps to get the most resource related bang for your Australia buck, investors should think small. The IQ Australia Small Cap ETF (NASDAQ:KROO) tracks 100 different smaller Aussie firms with the bulk of its holdings in the commodities sector. However, shares aren’t very liquid and investors should use limit orders when accessing the fund to avoid overpaying. 

Finally, given bonds inverse relationship with interest rates investors may want consider both the WisdomTree Australia & NZ Debt (NASDAQ:AUNZ) and PIMCO Australia Bond Index ETF (NYSE:AUD). The ETFs can be used to add a wide swath of Australian debt to a portfolio and profit from falling interest rates.

The Bottom Line

Australia is often overlooked by investors. However, the nation’s commodity sector is the envy of the world. That key contributor is about to get even more powerful given some recent policy changes. For investors, adding a dose of Australian firms to a portfolio could be a great bet in the near term.  

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.

Related Articles
  1. Chart Advisor

    How Are You Trading The Breakdown In Growth Stocks? (VOOG, IWF)

    Based on the charts of these two ETFs, bearish traders will start turning their attention to growth stocks.
  2. Mutual Funds & ETFs

    Pimco’s Top Funds for Retirement Income

    Once you're living off the money you've saved for retirement, is it invested in the right assets? Here are some from PIMCO that may be good options.
  3. Chart Advisor

    Watch This ETF For Signs Of A Reversal (BCX)

    Trying to determine if the commodity markets are ready for a bounce? Take a look at the analysis of this ETF to find out if now is the time to buy.
  4. Mutual Funds & ETFs

    ETFs Can Be Safe Investments, If Used Correctly

    Learn about how ETFs can be a safe investment option if you know which funds to choose, including the basics of both indexed and leveraged ETFs.
  5. Mutual Funds & ETFs

    The Top 5 Large Cap Core ETFs for 2016 (VUG, SPLV)

    Look out for these five ETFs in 2016, and learn why investors should closely watch how the Federal Reserve moves heading into the new year.
  6. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
  7. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
  8. Investing

    3 Things About International Investing and Currency

    As world monetary policy continues to diverge rocking bottom on interest rates while the Fed raises them, expect currencies to continue their bumpy ride.
  9. Chart Advisor

    These 3 ETFs Suggest Commodities Are Headed Lower (COMT,CCX,DBC)

    The charts of these three exchange traded funds suggest that commodities are stuck in a downtrend and it doesn't look like it will reverse any time soon.
  10. Trading Strategies

    4 ETFs To Trade the Russian Ruble (RSX, ERUS)

    Discover which exchange-traded funds (ETFs) provide investors with the greatest exposure to the Russian ruble and learn about the risks that come with each.
RELATED FAQS
  1. Is Australia a developed country?

    Australia is one of the most developed countries in the world. The nation's per capita gross domestic product (GDP), one ... Read Full Answer >>
  2. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  3. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  4. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  5. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  6. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center