Tim Murphy, co-head of funds research at Morningstar Australia, cites two large-cap funds with solid long-term track records that are also open to foreign investors. The A$3 billion Ausbil Australian Active Equity Fund has generated 10-year annualized returns of 12.38% through October. The minimum investment is A$50,000 with a management fee of 90 basis points. Ten-year annualized returns of the A$1.2 billion Schroeder Australian Equity Fund are 11.24%. The minimum investment is A$500,000 with a management fee of 57 basis points. These two funds don't collect performance fees.
Despite a significant swoon in the Aussie dollar late in 2008 as investors flocked to safe-haven currencies, performance of the fund has been impressive over its brief trading history. Over the past year, the fund was up 47.20%. That was nearly triple of what Deutsche Bank U.S. Dollar Bear Index, a basket of six of the world's most widely traded foreign currencies, delivered over the same period, which was up 17.52%. And over the past three years, the Aussie Dollar fund averaged annualized returns of 11.96%, besting the foreign currency basket by over eight percentage points.
Investors also benefit from the structure of the Trust, which keeps assets in demand deposit accounts, which is currently yielding 2.27%.
Australia is not a panacea for market risk. As was seen last year, the country is vulnerable to global economic volatility. While the current rally is a symmetrical response to a severe sell-off, profit-taking and a correction are likely over the near term. The same holds true about the rapid rise of the Australian dollar. Currencies don't move in only one direction. And when U.S. interest rates start to rise, traders may respond by supporting the greenback. Until then, prolonged appreciation of the Australian dollar could erode the country's export strength and foreign direct investment in Australia.
But the rapid recovery of its equities and currency speak of Australia's underlying strength. With most market observers believing that emerging markets are going to be the strongest sources of growth going forward, achieving this exposure through the security of a strong developed market may be the safest way ahead.