Austria is well known among the general public for Vienna's beautiful summers and alpine skiing during the winters. But, the country is popular among international investors for its robust and growing economy supported by its neighbor to the northwest. In this article, we'll take a look at Austria's growing economy, how U.S. investors can build exposure using ETFs and ADRs, and some of the risks that investors should carefully consider before getting involved.
Austria's Growing Economy
Austria's economy is one of the largest in the world, with a 2012 gross domestic product ("GDP") of $395.5 billion. On a per capita basis, Austria is the 12th richest country in the world with a highly developed social market economy and a high standard of living. The country's proximity to Germany - Europe's powerhouse - has helped drive a lot of this growth, while Vienna is widely considered to be an international center of business.
According to the Heritage Foundation, Austria is the 25th freest country in the organization's 2013 index with a 71.8 rating. The greatest hindrance to the country's economic success continues to be an overextended government, with the top individual tax rate approaching 50% and public spending that remains unsustainable by Heritage standards. However, the organization notes that the country has been improving in recent years.
Investing in Austria with ETFs
Exchange-traded funds ("ETFs") provide U.S. investors with an easy way to build exposure to foreign securities into their portfolio. By holding a number of foreign stocks, ETFs provide diversified exposure to an entire country in a single U.S.-traded security. However, investors should be aware that ETFs may be unevenly exposed to specific companies or sectors, which makes it important for investors to carefully read the prospectus before investing.
The most popular Austrian ETF is the iShares MSCI Austria Capped ETF (NYSE: EWO), which has total net assets of about $102.2 million, as of September 2013. With nearly 30 Austrian securities in its portfolio, investors have diversified exposure to Austria's many industries with an expense ratio of just 0.5%. However, investors should be aware that the ETF holds a 14.2% stake in Erste Group Bank and is 35.6% weighted in the financial sector.
OMV & Other Austrian ADRs
American Depository Receipts ("ADRs") provide investors with an easy way to invest in foreign securities by purchasing U.S.-traded securities. By purchasing bulk lots of foreign stock, U.S. banking institutions can issue ADRs on U.S. exchanges like the NYSE or NASDAQ. However, investors should be aware that ADRs are typically less liquid that regular U.S. stocks and may involve certain tax implications, particularly when it comes to dividends or distributions.
One of the most popular Austrian ADRs is OMV AG (OTC Markets: OMVKY), an oil and gas exploration, production, and refining company holding largely Romanian and Austrian assets. With a $15.6 billion market capitalization, as of September 2013, the company offers a 3.2% dividend yield and trades at a 7x price-earnings multiple. Another popular ADR is Erste Group Bank AG (OTC Markets: EBKDY), which is held in the aforementioned Austrian ETF.
Risks & Other Considerations
Investors should consider a number of different risks before investing in Austrian ETFs or ADRs, ranging from geopolitical risks to currency risks. From a geopolitical risk standpoint, Austria's economy is heavily dependent on E.U. economies and especially Germany's economy. Since many Austrian companies earn euros, U.S. investors should also be aware of currency fluctuations that could impact the value of their portfolios over time.
Investors should consult a financial advisor or tax professional before making investment decisions.