WisdomTree, the issuer behind a number of popular international debt ETFs, followed through today on the previously announced conversion of its Dreyfus New Zealand Dollar Fund (previously traded under the ticker BNZ) to the Australian & New Zealand Debt Fund (AUNZ). The revised fund will continue to be actively managed, with the investment objective changing to focus on bonds denominated in the local currencies of Australia and New Zealand. While there are now a number of international bond ETFs, AUNZ is yet another ETF first; the fund becomes the first to focus exclusively on the two developed Pacific economies.
Aussie Dollar On A Roll
Australia and New Zealand also represent two developed economies that have largely managed to avoid the deterioration of fiscal health that has plagued the U.S. and Western Europe. Both countries are rich in natural resources, and that commodity wealth is a major reason for the relatively strong balance sheets maintained in the current environment. An extended rally in commodity prices has helped to pad government coffers, especially as surging demand from China and other emerging Asian powerhouses has contributed to robust demand to everything from wheat to wool to gold.
Flooding throughout Australia in 2011 has contributed to weaker GDP than originally anticipated, and recent softness in some commodity markets has weighed on the region as well. Still, the outlook for the country is strong–especially compared to other developed markets elsewhere. While Australia is currently running a government deficit, the country aims to return to a surplus in 2012 and 2013.
The strong demand for commodities and relatively strong fiscal shape have contributed to an impressive and steady climb in the value of the Aussie dollar over the last several years. The CurrencyShares Australian Dollar Trust (FXA) is the best performer in the Currency ETFdb Category over the last five years, rising an impressive 68% during that time period.
International Bond ETFs
AUNZ becomes the fourth international fixed income product in the WisdomTree lineup, joining the broad based Emerging Markets Local Debt Fund (ELD) and Asia Local Debt Fund (ALD), which includes exposure to debt denominated in currencies of developed and emerging Asian economies. Those two funds, both of which are less than two years old, have accumulated aggregate assets of about $1.5 billion. Earlier this year, WisdomTree also converted a product that offered exposure to the value of the euro into the Euro Debt Fund (EU). The revamped EU will focus on debt denominated in euros.
Historically, U.S-based investors have relied primarily on bonds from U.S. issuers to make up the fixed income portion of portfolios. But with interest rates hovering close to zero in many cases and concerns over the credit risk of Treasuries and U.S. corporates, many investors have begun to look overseas to international bonds as a way to both enhance yields and achieve better diversification. ETFs have emerged as a popular vehicle for investors looking to tap into international debt markets; in addition to the aforementioned products from WisdomTree, there are now ETFs that offer access to Latin American debt (BONO), international inflation-protected bonds (WIP), international corporates (PICB and IBND), and a trio of new funds targeting China’s bond market (RMB, DSUM, CHLC).
Currently there are three ETFs offering exposure to Australia’s stock market, including WisdomTree’s Australia Dividend Fund (AUSE). IndexIQ offers a small cap Australia ETF, and iShares’ MSCI Australia Index Fund (EWA) is one of the larger country-specific funds with more than more than $2.6 billion in AUM. The iShares MSCI New Zealand Investable Market Index Fund (ENZL) is the only pure play New Zealand ETF.
AUNZ will charge an expense ratio of 0.45%
Disclosure: No positions at time of writing.