Wednesday’s ETF To Watch: Aussie ETF (KROO)

by on September 1, 2010 | ETFs Mentioned:

With major stock exchanges in the U.S. and Europe receiving significant coverage in the financial press, developed economies in Asia have generally flown under the radar. Australia, the well developed and well-diversified economy down under, is often overlooked by many investors despite an impressive track record. The Aussie stock market has posted gains of 7.5% annually over the past 110 years, making it the best performing stock exchange in the world. The resource rich country has a stable economy that is currently the 13th largest in the world [see also Three ETFs To Invest In The World’s Top Stock Market].

Australia has grown at an average annual rate of 3.6% for the last 15 years, and boasts the 11th highest GDP per capita on the globe. Despite the heavy financial focus this economy carries, Australia stayed afloat during the financial crisis that struck many markets in recent years thanks to an abundance of mineral deposits and strong demand from Asia. Though Australia has a strong economy, the nation is currently faced with political uncertainty. Recent elections left hazy outlooks for the legislative landscape, as no single party received the required number of seats to form a government [see Australia ETFs In Focus Amid Electoral Uncertainty].

Today, Australia will be releasing its GDP results for the most recent quarter, leaving investors on edge as this critical data flows in. In 2010, Australia was expected to experience GDP growth of 2.5% and an additional 3.5% in 2011. A high GDP result would be ideal, as it would show signs of a healthy economy that is on track with predictions. But this may also raise concerns about rising inflation rates, which may force the central bank to once again raise rates. Overall, a strong GDP result will be good news for the country, as inflation fears would likely be background noise to a bolstering economy that has seen its mining industry boom thanks to Chinese demand [see also Seven ETFs To Invest Like Peter Schiff].

With this major report of the Australian economy coming in, today’s ETF to watch is the IQ Australia Small Cap ETF (KROO). The fund tracks a number of small cap equities with a focus on the industrial materials (29%) and energy (11%) sectors. The relatively new ETF has only been around for a few months, but has lost 10.4% during that time span [see KROO's fundamentals here]. The GDP results could have a big impact on this fund, as KROO offers exposure to smaller firms that are more susceptible to volatility in the Australian market, as opposed to the large multinational companies that dominate EWA.

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Disclosure: No positions at time of writing.