Investment Handbook: Insights into Australia's Major Equity Fund ETF
In the world of exchange-traded funds (ETFs), two popular options for investors seeking exposure to the Australian equity market are the iShares MSCI Australia ETF (EWA) and the Franklin FTSE Australia ETF (FLAU). Here's a breakdown of how these two ETFs differ in terms of portfolio composition, expense ratio, and liquidity.
Portfolio Composition
EWA tracks the MSCI Australia Index, which primarily represents large- and mid-cap Australian companies, providing a broad overview of the Australian equity market. On the other hand, FLAU follows the FTSE Australia 30/18 Capped Index, which also focuses on large- and mid-cap Australian stocks but with a cap on the maximum weight of any single stock (30%) and maximum sector weight (18%). This approach promotes more diversification and reduces concentration risk compared to EWA.
Expense Ratio
EWA typically carries a higher expense ratio, around 0.48% per annum. In contrast, FLAU is generally cheaper, with an expense ratio near 0.15% per annum, making it more cost-efficient for investors targeting Australian equity exposure.
Liquidity
EWA is one of the most widely traded Australian ETFs, boasting higher average daily trading volume and tighter bid-ask spreads, ensuring it remains highly liquid. FLAU, being a smaller and newer ETF, generally shows lower volume and liquidity than EWA, which may result in wider bid-ask spreads and higher trading costs for large orders.
In summary, EWA offers broader and more liquid exposure to Australian equities with higher costs and less sector diversification concentration controls. FLAU, however, provides more cost-efficient and diversified exposure but with lower liquidity. Investors should consider their priorities between cost, diversification, and trading flexibility when choosing between the two.
It's essential to note that EWA is priced at an elevated price-to-earnings multiple of close to 20x, representing a 5% premium over global markets and a 35% premium over developed markets outside the US. This premium may be a factor for investors to consider when deciding between these two ETFs.
[1] - Source: [Link to the original source for the information about FLAU's capping rules] [2] - Source: [Link to the original source for the information about FLAU's lower liquidity] [3] - Source: [Link to the original source for the information about EWA's higher costs] [4] - Source: [Link to the original source for the information about EWA's lack of sector diversification] [5] - Source: [Link to the original source for the comparison between EWA and FLAU]
While considering investment in exchange-traded funds (ETFs) for exposure to the Australian equity market, one might contemplate the interplay of technology and finance. For instance, both the iShares MSCI Australia ETF (EWA) and the Franklin FTSE Australia ETF (FLAU) leverage technology to track different indices, with EWA following a broader index that may prompt higher concentration risk, while FLAU's technology-driven indexing approach, featuring sector and single stock capping, enhances diversification. On the aspect of finance, the expense ratio for FLAU is lower, making it a more cost-effective choice for investors targeting Australian equity exposure. The choice between these ETFs could hinge on striking a balance between investment in education about the underlying cost and diversification differences, and one's individual priorities.
