Global X Files For A Saudi Arabia ETF [WisdomTree Trust, PowerShares MENA Frontier Countris Prt]

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February 17, 2014 6:44pm NASDAQ:GULF NASDAQ:PMNA

middle eastAfter a slew of launches in 2013 from Global X, including SuperDividend U.S. ETF (DIV) and MLP & Energy Infrastructure ETF (MLPX) among others, it appears as though the company is now setting


its sights on the Middle East, and in particular Saudi Arabia, with a new fund filing.

This could be the first ETF from Global X to target the country. Though some key information, including expense ratio and holdings were not released, we have highlighted some of the main points below.

The Proposed Fund in Focus

As per a recent SEC filing, the proposed passively managed ETF will trade under the name of Global X MSCI Saudi Arabia ETF though the sponsor has not yet decided on the ticker symbol. The fund seeks to match the performance and yield of the MSCI Saudi Arabia Domestic Islamic 25/50 Index before fees and expenses.

This benchmark looks to give exposure to publicly traded companies that are domiciled and listed in Saudi Arabia, or those that generate at least 80% of their revenues from the nation.

The main market in the country is known as the Tadawul and currently consists of about 158 firms. Trading is done from Sunday to Thursday, leaving Friday and Saturday as off days for this market.

How Might this Fit in a Portfolio?

This ETF, if approved, would be the first fund to provide concentrated exposure to Saudi Arabia. The country is one of the biggest producers and exporters of oil in the world, and is a key player on both the regional and world economic stage.

Though the nation has a positive economic outlook based on various factors including GDP growth, fiscal balance and current account balance, there are some risks to investing in the economy.

The country is currently witnessing falling revenues from oil, which seems to be its biggest concern. This drop in oil revenues is impacting the country’s GDP growth.

Though the government is trying to diversify its sources of revenue, little has materialized so far.  Hence, if the problem of falling oil revenues is not solved, there are risks that the current account surpluses might turn into deficit.

Competitors 

Currently, there are a few good options for investors looking to access the Middle East market (See all Africa-Middle East Equity ETFs here).

Market Vectors Gulf States Index ETF Fundamentals (NYSEARCA:MES) and WisdomTree Middle East Dividend Fund (NASDAQ:GULF) are good choices for investors wanting a broad exposure to Gulf States.

Also, Van Eck Egypt Index ETF (NYSEARCA:EGPT) and PowerShares MENA Frontier Countries Portfolio (NASDAQ:PMNA) are good picks for inventors respectively looking for concentrated Egyptian exposure, or a diversified exposure across both the Middle East and North Africa (read: Inside the Surging Egypt ETF).

Though we currently have a Zacks ETF Rank #3 (Hold) on the above mentioned ETFs, MES currently has a Zacks ETF Rank #2 (Buy) rating

MES uses a replication strategy to track the performance of its index, Market Vectors GDP GCC Index. The index tracks the performance of the biggest and most liquid companies in the Gulf Cooperation Council (GCC) region.

The fund’s exposure in Qatar and UAE is expected to be highly beneficial for the fund. These regions have been upgraded for inclusion in the MSCI Emerging Markets Index, which will prompt funds tracking the index to buy the stocks of these nations.

Bottom Line

The prospect of a Saudi Arabia ETF is pretty interesting, though one has to wonder what kind of companies will be included in the product. Also, small niche country funds have had trouble accumulating assets in the past, so it will be interesting to see if a Saudi Arabia ETF (should it pass regulatory hurdles) is able to break the trend.

This article is brought to you courtesy of Eric Dutram.


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