In the ETF world, the Middle East has often been ignored. But
going by current trends, it does not seem so any more with the
second filing focusing on this region in the last month.
A few weeks back,
Global X had filed for a Gulf-focused fund
, a MSCI Saudi Arabia ETF, and now iShares, the world's leading ETF
provider, has filed for two funds focused on the Middle East too.
While one of the iShares funds is focused on the United Arab
Emirates (UAE), the other has Qatar as its emphasis. This is the
first time that iShares is venturing into the Middle East outside
of Israel (read:
How Frontier Market ETFs Surged as EMs Plunged
Though some key information, including expense ratio and holdings
were not released, we have highlighted some of the main points
The Proposed Funds in Focus
As per the recent SEC filing, both the proposed products -
iShares MSCI UAE Capped ETF
iShares MSCI Qatar Capped ETF
- are passively managed exchange traded funds though the sponsor
has not yet decided on the ticker symbols.
MSCI UAE Capped ETF
seeks to match the performance and yield of the MSCI All UAE Capped
Index before fees and expenses. This benchmark looks to give
exposure to publicly traded companies that are classified in the
UAE, according to the MSCI Global Investable Market Indices
methodology, as well as domiciled and listed in UAE.
MSCI Qatar Capped ETF
seeks to track the MSCI All Qatar Capped Index. Like the above
mentioned fund, this index too uses the same strategy to select
stocks based in Qatar.
The underlying indices of both the funds seek to have primary
exposure to companies from the energy, financials and industrials
sectors. The funds will include stocks from the entire spectrum of
How Might this Fit in a Portfolio?
If approved, the above mentioned ETFs will give investors an
interesting choice to invest in the Gulf (read:
Can Gulf ETFs keep glowing?
Last year, both UAE and Qatar have been upgraded by the MSCI from
frontier markets to emerging market status. These nations will be
joining the index from June this year. The upgrade is
expected to be highly beneficial for the equity markets in this
region as they are likely to see huge capital inflows.
Also, the low interest rate environment prevailing in this region
is expected to bode well for economic activity. As per IMF,
both Qatar and UAE are expected to clock above 4% growth this year.
The funds are likely to face competition from
Market Vectors Gulf States Index ETF Fundamentals
WisdomTree Middle East Dividend Fund
all the Middle East-Africa ETFs here
Though not fully invested in the UAE and Qatar alone, both the
above mentioned funds have decent exposure to these Gulf States.
MES invests more than one-third of its total fund assets in UAE,
while having 24.3% exposure to Qatar. On the other hand, GULF has
the highest exposure to Qatar (31.58%), followed by UAE (26.49%).
All the same, the funds have more than half of their assets
invested in Qatar and UAE combined.
MES charges 99 basis points as fees, higher than the 88 basis
points charged by GULF. The financial sector occupies almost half
of the total fund assets for both the funds.
Unlike the U.S., Gulf markets have performed quite well so far this
year. Both MES and GULF have added over 8% in 2014.
However, both the funds have a small asset base. While GULF manages
close to $31 million, MES has an AUM of $20 million.
Given the competition in the space, it may be difficult for iShares
to build up assets at the beginning with its new ETFs, though if
these Gulf States can continue to outperform some risk-tolerant
investors might show some interest in these niche country funds,
should they pass regulatory hurdles (read
Frontier Market ETF Investing 101
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WISDMTR-ME DIV (GULF): ETF Research Reports
MKT VEC-GULF ST (MES): ETF Research Reports
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