Most Brits have at least one relation in Australia, South Africa or Canada who loves to spout on about how much better life is in the colonies.
And as Auntie Brenda bungs another shrimp onto the barbie while we struggle through rain, cold and misery – and that’s just June – it’s easy to believe them.
Well, it’s easy to believe the Aussies and the South Africans. I’m not sure what the advantage of Canada is… Trees?
Anyway, perhaps you’ve thought of backing the good life with your investing cash, even if you don’t fancy relocating?
Australia has better demographics than the UK, after all, and like Canada and South Africa it also has a lot of those resources the man on the Beijing Omnibus can’t get enough of.
The good news is investing in these countries from the comfort of our over-priced rabbit hutches in the UK just got much easier.
It’s cost effective, too!
Australian, Canadian and South Africa ETFs from iShares
All this international joy is emanating from iShares, which is probably the best ETF provider in the UK.
It has launched three single country ETFs tracking Australia, Canada and South Africa, and they look pretty good value by UK standards; the South African ETF is slightly more expensive on an annual basis, but you’d expect that as the market is shallower and riskier.
The other thing to note is they are all accumulating funds, which means dividends are rolled up within the ETF.
iShares are doing this with more and more ETFs (in fact they recently launched accumulating versions of some of their big existing ETFs), and they say:
All 3 funds are accumulating funds that automatically re-invest dividends directly into the fund, which means you can easily manage operational complexities of receiving and then re-investing dividend payouts.
More like you don’t get a choice – a shame, as these ETFs are likely to be fairly high yielding.
There will be tax consequences, too, which you can read about on the iShares site.
Aside from that it’s hard to say much more about the ETFs, as their holdings haven’t been declared on the iShares site yet and I can’t seem to find the relevant indices on the MSCI website.
But here’s the ETF names and their tickers and charges:
iShares MSCI Australia
Epic code: SAUS
Expense ratio: 0.59%
Link to SAUS details
iShares MSCI Canada
Epic code: SCAN
Expense ratio: 0.59%
Link to SCAN details
iShares MSCI South Africa
Epic code: SRSA
Expense ratio: 0.74
Link to SRSA details
Investing overseas and currency risk
Investing overseas can diversify your portfolio, but don’t forget you’ll also introduce currency risk (which could be a good or bad thing, depending on how the dice fall).
Things are made slightly more complicated by the fact that the base currency for the Australian ETF is UK pounds, but for the ETFs for Canada and South Africa it’s US dollars.
Still, if you plan to retire in Australia, for example, it might be worth thinking about steadily buying up a holding of the Australian ETF, as you’d then have some exposure to the Australian dollar, should it shoot upwards.
You could also use the ETFs to bet on the out-performance of their markets, or to play the commodity story.
For most of us though it makes more sense to invest overseas via regional or even global funds, rather than pick single countries, which is riskier.
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Personally, I’m not a huge fan of investing in country or industry ETF’s. I think it’s important to keep in mind the risk of doing so – and my experience tells me that few people do.
Having said that, these ETF’s might be a great fit for the right investor. Thanks for bringing them up.
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The spread on the less popular iShares ETFs can be quite bad (c. 1%) which is something else to watch out for.
@Neal – I agree, but provided the charges don’t creep up too far above normal ETFs then it’s hard to knock the flexibility. Totally agree about the risk.
@Lemondy – Indeed. In the US less popular ETFs have also suffered from being closed down (from memory at inopportune times – e.g. ETFs than track hedge fund indices).
Thanks for the comments guys.
Perhaps an alternative to the Australian ETF would be the Asia-Pacific High Yield ETF (IAPD), which is 50% invested in the Australian market, and has a distributing yield of about 3.7% currently.
In any case, these economies have good prospects: Canada had the mildest downturn of all the G7 economies, and Australia escaped recession entirely.
Single nation funds though are always more risky. Perhaps what we really need a ‘Commonwealth’ ETF covering the key markets in the former British empire!
@Faustus – Thanks for the idea, but I’d be slightly wary of that particular high yield ETF as a long-term play, to be honest. If it’s anything like the UK version (IUKD) it will be more like a high-risk recovery fund than a traditionally more stable dividend-focused security.
What do you think of the idea of using these single country funds ahead of emigration, as I mention in the article? I almost wonder if that’s why iShares has decided to add them to the mix.
I like the idea of ETF’s but there is additional currency risk. With the Canadian Index fund the ETF is investing in Canadian companies, primarily with Canadian dollars but the fund is valued in US dollars … and the investor must convert to US.
There is an older iShares Oz fund http://www.google.com/finance?q=NYSE%3AEWA – coincidentally I was using it to benchmark my SIPP and it is down about 10% over the period I was looking at (April 2008 to date).
I like the idea of this as a pre-emigration strategy though (I wouldn’t blame you for abandoning the UK … (-: ).
I wish there were more rollup funds as you say – Deutsche seems to favour them more for some reason.
On the ETF side though I more tempted by the different weighting methodologies though as I hold a few country ETFs already. Actually as an $A holder one of the most interesting country ETFs at the moment might just be the UK – god knows there is a bit of pessimism already in the market!
But there does seem an intrinsic issue with market cap weighted ETFs … it certainly goes against my contrarian leanings people like Dimensional seem to outperform. I’d love to know what’s out there that’s better (I already own IUKD). An article perhaps …. maybe we should even split it into a two-parter …. (-:
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@SMSFs – You’re a lucky man, with your $A to spend! Could be as good as it will get in the cycle for the Aussie dollar – commodities strong in early recovery, and Australia ahead in raising interest rates? Who knows, but in your shoes I’d be diversifying out of it.
You’re Australian but you did a stint in London, right? It has literally been cloudy / snowy / grey here for three months, bar maybe three days. You know the score. 🙁
Did 15+ years in London. Yeah I normally invest outside Oz – but more knowledge of other markets than anything else (and don’t understand resources stocks). There are some disquieting things here. The Economist recently did a house price comparison based on rental yield for example – had Australia about 50% overvalued and one of the top 3 overvalued housing markets worldwide (think the other two were Spain and Hong Kong). UK ‘only’ 30% overvalued now in same study… The index in Australia is also heavily financial in sector terms last time I looked – even more so than resource stocks
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@SMSFs – Thanks for the info. I keep an eye on the Australian property market due to relations and occasional daydreams of moving there, and it does seem to have exploded, although with the weak pound it’s a complicated picture. Still, what you get for your money out there still seems incredible, if Relocation Down Under, a TV show with property bloke Phil Spencer, is anything to go by.
Re: Those stats in The Economist, backs up another recent survey: http://www.themovechannel.com/news/227a9594-adc2/