TheStreet.com Ratings
TheStreet.com Ratings: An ETF Idea for Australia
By Sam Patel
Manager of Mutual Fund Research
10/26/2006 10:07 AM EDT
URL: http://www.thestreet.com/funds/ratings/10317513.html
The Australian senate's decision earlier this month to remove restrictive media ownership laws that have been in place in the country for decades will allow companies to control two forms of media outlets -- a radio station and a newspaper, for instance -- in one city. In addition, the new regulations, which must be approved by the country's house of representatives -- a move that most observers say is a given -- would open the door to foreigners seeking to buy Australian media companies. Australia has lagged other countries in both freeing up its media sector and attracting private equity, so both of these factors coming into play simultaneously is good news for savvy investors. Over the past year, private equity investment in the country has exploded, with offers for Australian business assets reaching $21.3 billion so far this year, up from $1.4 billion in all of last year, according to Bloomberg. Indeed, talk of mergers and takeovers is heating up Down Under. TheStreet.com Ratings is highlighting the iShares MSCI Australia Index Fund (EWA) as an ideal product for those wanting exposure to the thriving Australian economy. Of the 800 closed-end funds that we rate, including some 198 ETFs, the iShares Australian fund is currently ranked No. 22. In addition, it has earned our A-plus rating. The fund's portfolio includes the country's major media companies, so any buyout/takeover activity (the main names on the radar screen are John Fairfax Holdings -- a likely target for acquisition -- and Publishing and Broadcasting) resulting from the eased ownership regulations will likely benefit the stocks of these companies and, hence, this fund. The table below lists the fund's top six sectors by allocation, as of Sept. 30.
Money, Metals and Buildings
|
| Sector | Percent |
| Banks | 27.82% |
| Mining | 16.82 |
| Real Estate | 11.25 |
| Insurance | 6.39 |
| Oil & Gas | 4.05 |
| Diversified Financial Services | 3.93 |
| iShares.com |
Banks in the Lead
Financial institutions are repeatedly showing up as major assets in our top-rated funds across the globe, and this product is heavily weighted toward the banking sector; this is another reason TheStreet.com Ratings likes it. The bank holdings represent stable and conservatively run organizations that withstood the ultimate test during the Asian crisis of 1997. While many financial institutions in the region collapsed under the weight of nonperforming loans, the Australian banks continued business relatively unscathed despite their geographic proximity and exposure to the region. The fund's stake in the mining sector is another strength, as Australia is a resource-based economy -- that is, it is rich in minerals and commodities, items that rapidly expanding Asian economies, especially China, will demand for years to come. The portfolio's real estate exposure, however, is cause for some concern, as that sector is in the midst of a correction globally. However, though returns from property are down from their highs, they are still very good overall in Australia. The table below lists the fund's top 10 holdings as of Sept. 30.
A Concentrated Strategy
|
| Name | Ticker | % Net Assets | Sector |
| BHP Billiton | BHP | 10.88% | Materials |
| National Australia Bank | NAB | 7.16 | Financials |
| Commonwealth Bank of Australia | CBA | 7.16 | Financials |
| Australia & New Zealand Banking Group | ANZ | 5.97 | Financials |
| Westpac Banking | WBC | 5.06 | Financials |
| Westfield Group | WDC | 3.43 | Financials |
Sam Patel, CFA, is the manager of mutual fund Research for the TheStreet.com Ratings. In keeping with TSC's Investment Policy, employees of TheStreet.com Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published. While Patel cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.
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