ABERDEEN AUSTRALIA EQUITY FUND (IAF) -- The greenback is slipping, oil is soaring, and China's economy is still growing faster than just about any other place on earth. What else do we need to convince us to take a closer look at the Aberdeen Australia Equity (IAF)? 

Let me explain.

Aberdeen Australia is an exchange-traded fund (ETF). It trades just like a stock, but consists of an underlying portfolio of stocks just like a mutual fund. The fund delivers an extraordinary 7.5% dividend yield ($1.00 per share a year) and its share price has already gained +15% this year (and that's on top of a +40% jump last year).

This ETF is one of the few vehicles that enable U.S. investors to take advantage of the sizzling Australian and New Zealand stock market. Top holdings in the fund's portfolio include Australia's biggest iron ore and coal producers -- BHP Billiton (BHP) and Rio Tinto (RTP). The fund also has a large position in New Zealand's largest company, Telecom New Zealand (NZT). Many of the other major names in the fund's portfolio are not even listed on U.S. exchanges. These include global insurer QBE Insurance, engineering firm Leighton Holdings, and Australia's largest beer and wine maker -- Fosters.

While U.S. stocks are basically treading water, stocks "down under" are racing ahead. Compared to the S&P (^GSPC), which is down -2% this year, the major Australian (^AORD) and New Zealand (^NZ50) indices have climbed about +5%. 

These gains are being powered by neighboring China's voracious appetite for oil, coal, copper, steel, and other resources. And even though the Chinese government recently took some steps to slow its economy, China still boasts one of the world's fastest-growing economies. As two of that nation's primary trading partners, Australia and New Zealand should continue to benefit from that tremendous growth.

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The Aberdeen Australia Equity Fund should also get a lift from the slumping U.S. dollar, which recently fell to a multi-month low versus several major currencies on fears of a widening trade gap. Commodities such as oil and gold are generally priced in U.S. dollars, so when the dollar loses value, prices generally rise to pick up the slack. Higher prices drive up the shares of the various resource stocks held in IAF's portfolio.

Higher commodity prices also raise demand for Australia's and New Zealand's commodity-based currencies. As a result, the Australian dollar recently hit a one-year high versus several major currencies. Meanwhile, New Zealand's dollar has climbed to fresh all-time highs against the greenback. That's good news for IAF shareholders, as a weaker U.S. dollar will translate into higher dividend payments for U.S. shareholders.

Finding funds with +7.5% dividend yields and strong growth potential is no easy task in this market, but we think we've found a winner in IAF. With this in mind, income-oriented investors would be wise to take a closer look at the Aberdeen Australia Equity Fund (IAF).

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