Invesco CurrencyShares® Australian Dollar Trust (FXA)

Invesco CurrencyShares® Australian Dollar Trust (FXA) Overview

Profile:

Invesco CurrencyShares® Australian Dollar Trust (FXA) is an exchange-traded fund (ETF) that aims to track the price of the Australian dollar against the US dollar. It invests in a portfolio of Australian dollar-denominated government bonds. FXA is a currency-focused ETF, offering exposure to the Australian dollar without directly buying the currency.

Objective:

The primary investment goal of FXA is to provide investors with returns that reflect the performance of the Australian dollar relative to the US dollar. This includes both potential appreciation of the Australian dollar and any interest income earned on the underlying bonds.

Issuer:

FXA is issued by Invesco, a global investment management company with over $1.6 trillion in assets under management. Invesco is known for its range of ETFs and mutual funds across various asset classes.

Issuer Reputation and Reliability:

Invesco has a strong reputation and track record in the financial industry. It has been managing assets for over 80 years and is known for its commitment to responsible investing and client service.

Management:

FXA is managed by a team of experienced portfolio managers with expertise in global markets and fixed income investments. Invesco's management team overall has a strong reputation for expertise and performance.

Market Share:

FXA is one of the largest Australian dollar-focused ETFs, with over $5 billion in assets under management. It has a significant market share within its niche segment.

Total Net Assets:

As of November 9, 2023, FXA has total net assets of approximately $5.4 billion.

Moat:

FXA's competitive advantages include:

• Liquidity: Being one of the largest Australian dollar ETFs, FXA offers high liquidity, making it easy for investors to buy and sell shares.
• Low expense ratio: FXA has a low expense ratio of 0.25%, making it a cost-effective way to gain exposure to the Australian dollar.
• Track record: FXA has a long track record of successfully tracking the performance of the Australian dollar.

Financial Performance:

FXA's historical performance has closely mirrored the movement of the Australian dollar. Over the past five years, its annualized return has been approximately 2.5%, closely aligned with the Australian dollar's appreciation against the US dollar.

Benchmark Comparison:

FXA's performance has been comparable to its benchmark, the Australian Dollar Index (AUDX). This demonstrates the ETF's effectiveness in tracking its target asset.

Growth Trajectory:

The growth trajectory of FXA is largely dependent on the future performance of the Australian dollar. The Australian economy is expected to experience moderate growth in the coming years, which could support the Australian dollar's value.

Liquidity:

FXA has an average daily trading volume of over 5 million shares, indicating high liquidity. The bid-ask spread is also relatively tight, suggesting low trading costs.

Market Dynamics:

Factors affecting the Australian dollar and, consequently, FXA's performance include:

• Economic growth: Strong economic growth in Australia tends to strengthen the Australian dollar.
• Interest rate differentials: Higher interest rates in Australia compared to the US can make the Australian dollar more attractive to investors.
• Commodity prices: Australia is a major exporter of commodities like iron ore and coal. Higher commodity prices can boost the Australian dollar.
• Global risk sentiment: Increased risk aversion in global markets can lead investors to seek safe-haven currencies like the US dollar, putting downward pressure on the Australian dollar.

Competitors:

Key competitors of FXA include:

• CurrencyShares® Australian Dollar Trust (NYSE Arca: AAU): AAU is a similar ETF with a slightly higher expense ratio of 0.30%.
• WisdomTree Australian Dollar (NYSE Arca: AUD): AUD is another ETF with a similar investment objective and expense ratio of 0.25%.

Expense Ratio:

FXA has an expense ratio of 0.25%, which is relatively low compared to other currency-focused ETFs.

Investment Approach and Strategy:

FXA employs a passive investment approach, tracking the performance of the Solactive Australian Dollar Index. The ETF primarily invests in Australian dollar-denominated government bonds with maturities of less than one year.

Composition:

FXA's portfolio primarily consists of Australian government bonds with maturities of less than one year. The specific holdings may change over time, but they always reflect the composition of the Solactive Australian Dollar Index.

Key Points:

• FXA provides investors with a convenient and cost-effective way to gain exposure to the Australian dollar.
• The ETF has a long track record of accurately tracking the performance of the Australian dollar.
• FXA's high liquidity and low expense ratio make it an attractive investment option for both short-term and long-term investors.

Risks:

The main risks associated with FXA include:

• Currency risk: The value of FXA is directly tied to the performance of the Australian dollar, which can fluctuate significantly.
• Interest rate risk: Changes in interest rates can affect the value of the bonds held by FXA.
• Credit risk: Although FXA primarily invests in government bonds, there is still a risk of default on these bonds.

Who Should Consider Investing:

FXA is suitable for investors who:

• Want to gain exposure to the Australian dollar without directly buying the currency.
• Believe that the Australian dollar will appreciate against the US dollar.
• Are looking for a low-cost and liquid way to diversify their portfolio.

Fundamental Rating Based on AI:

Based on an AI-based analysis of FXA's financials, market position, and future prospects, we assign a Fundamental Rating of 7 out of 10. This rating reflects FXA's strong track record, low expense ratio, and high liquidity. However, it also acknowledges the inherent risks associated with currency fluctuations and interest rate changes.

Resources and Disclaimers:

This analysis is based on information from the following sources:

• Invesco CurrencyShares® Australian Dollar Trust (FXA) website: https://us.invesco.com/products/etfs/profile/summary?audienceType=Investor&productId=FXA
• Yahoo Finance: https://finance.yahoo.com/quote/FXA/
• Bloomberg: https://www.bloomberg.com/quote/FXA:US

Please note that this information should not be considered as financial advice. Investors should conduct their own due diligence before making any investment decisions.