In today’s world of excessive market volatility amid a seemingly endless credit crisis, investors are seeking two things: yield and safety.But with capital markets constantly in flux, no investments are completely safe and the ones that appear safest are providing miserly yields at best. However, at the moment the land down under, Australia, just may be one place where investors can protect their capital cake and ‘eat it’ too — with some yield!Because of the country’s ongoing economic boom and remarkable resilience in avoiding most of the difficult global recessions over the past few decades, Australia is often referred to as the ‘Lucky Country’.And while some recent reports in the popular media have cast a cloud of doom over the continent, I still believe that the land of the lucky people will continue to be a friendly place for patient investors.Watching my hometown Miami Heat basketball team soar to the top of the league and ultimately win the NBA finals this season reminds me of the importance of having the right set of talent on the court.In the case of Australia, the three ‘bigs’ helping investors to hit the score boards are the country’s relatively low debt level, a meaningfully higher base lending rate and superior growth prospects closely tied to the emerging economies of eastern Asia.Perhaps most importantly, Australia’s relatively low debt burden sets the country apart from the rest of the developed world. While the world’s largest economies of Europe, American and Japan find themselves trapped in a vicious cycle of constantly issuing more debt to make up for outspending their revenues, Australia is in much better shape.The most important metrics in evaluating a country’s sovereign fiscal condition are the deficit ratio and total debt/GDP ratio. In general terms, the deficit ratio is defined as the percentage amount that a country’s revenues fall short of its public outlays or expenses.To put this in everyday language, a deficit ratio of -10% would be equivalent to a person who spends $110,000 per year but only takes home $100,000 in pay. Most major countries these days outspend their revenue; but the extent of the overspending helps determine the relative financial strength or weakness of the nation.Australia looks pretty good by this measure posting a deficit ratio of -3.9% versus the developed country average of -6.3% according to the Organization for Economic Cooperation and Development (OECD).Moreover, the country’s deficit ratio is projected to fall to just 2.2% by the end of this year and then rise to a rare budget surplus for 2013! By comparison the US has a deficit ratio of -9.7% and Japan runs a worrisome ratio of about -9.5%.A country’s key ‘balance sheet’ ratio is found in the debt/GDP ratio, calculated as the amount of total national debt versus the nation’s national income. Relating back to the prior example of a person, an 80% debt/GDP ratio would be the equivalent of a person earning $100,000 per year having an $80,000 credit card balance to ultimately pay back. As of the end of last year, Australia’s debt/GDP ratio was just 27% compared to an OECD average of 103%. The US is now over 100% on this measure and Europe is right behind at 95% with the debt level rising with each new euro bailout program.The next factor potentially allowing for a more stable situation down under is Australia’s relatively high base lending rate of 3.5%. Unlike the other developed countries which have essentially used up their monetary ammunition by reducing interest rates to near zero, Australia still has room to cut rates further if they wish to stoke economic growth in the future if and when needed.And finally, Australia finds itself in a better overall growth position being leveraged to the faster-paced economies prospering in the developing Asian region. Clearly, China’s torrid growth rate of the past decade is now in question and signs are showing of slower growth ahead from all of the ‘Asian Tigers’.However, in a relative sense the emerging Asian region as a whole is still outpacing the Western world by about double and their population is generally younger and still growing. Bloomberg Economists are forecasting Australia to grow at a rate of 2.9% of 2012 and 3.5% in 2013 compared to 1.3% in 2012 and 1.8% in 2013 for the average developed economy.For believers in the relative success and stability of Australia, investors have a few choices.The easiest one to make and one which we are successfully deploying in our flagship LOM Fixed Income Fund is to overweight the country’s US dollar financial sector bonds. Corporate bonds backed by the big four Aussie banks are paying up to two percent points or more than US Treasury bonds of similar maturities and yet these solid banks all carry high credit ratings of at least AA.Even with the increasingly fickle rating agencies embarking on a mindless credit downgrading rampage lately, Australia’s high credit scores have remained largely unblemished and stand out from the rest.Other possibilities for profiting from region’s relative economic stability include investing in Australian dollar-denominated bonds and owning the country’s stocks directly or through a fund. Obviously, these tactics require more careful timing and incur an additional level of risk in the form of currency volatility and overall risk market exposure.It is important to remember that no investment strategy is risk-free.Some risks to this thesis include the fact that Australia’s economy, for better or worse is closely tied to the progress of emerging market demand for natural resources, particularly China. A ‘hard landing’ or sharp slowdown in China’s economy would surely impact Australia’s growth rate and share prices. Also, Australian home prices have run up sharply in recent years while many other countries have seen flat to down changes in real estate values.This resilience in housing demand has caused cause some analysts to urge caution.While the last point is to certainly one to keep a close eye on, the overall growth pattern for the continent does support further progress or at least what is likely to at least be an extended period of economic stabilisation. Stability can be quite nice in this market and the lucky county appears to be offering more than most.Bryan Dooley, CFA is a senior portfolio manager at LOM Asset Management Ltd in Bermuda specialising in the areas of asset allocation, portfolio management and quantitative process.He is a Chartered Financial Analyst, possesses an MBA from the College of William and Mary and has held key positions with progressive financial institutions worldwide throughout a career spanning more than 20 years. Please contact LOM at 441-292-5000 for further information.This commentary is for information purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, investment product or service.