The Middle East, the often ignored investment destination in the ETF world, finally has two single-country products focused on its equity markets. iShares, the world's leading ETF provider, has recently launched two products that provide single country exposure to the Middle East.
The new funds – iShares MSCI Qatar Capped ETF (QAT) and iShares MSCI UAE Capped ETF (UAE) –hit the market on May 1, 2014, and are solely dedicated to the securities focused on these nations.
The launch of these products could not be better timed, given that both the United Arab Emirates (UAE) and Qatar will be upgraded from frontier to emerging markets status from June this year. These nations will be reclassified from the frontier markets index to the MSCI Emerging Markets Index, making them the very first in the Middle East (read: EGShares Launches Blue Chip Emerging Market ETF).
UAE & QAT in Focus
UAE seeks to offer exposure to companies headquartered or listed in the UAE by tracking the MSCI All UAE Capped Index. The fund holds a small basket of 26 stocks, with the top holding, Emaar Properties, alone occupying more than one-fifth of total fund assets. Apart from the top holding, none of the stocks have double-digit exposure in the fund. This highlights some concentration risk in the top holding.
Sector-wise, the fund has quite the exposure to Financials (70.2%), suggesting concentration risk on this front as well. Apart from this, the fund has 19.5% allocation to Industrials, though it has low single-digit exposure to Energy and Healthcare sectors (read: 3 Energy ETFs to Buy on the Ukraine Crisis).
QAT provides exposure to the Qatar market by tracking the MSCI All Qatar Capped Index. The fund holds 26 stocks in Qatar with some concentration risk. The fund has more than 30% exposure to the top three stocks.
Sector-wise, Financials again takes the top spot having more than 50% allocation, followed by Telecommunication (14.17%), Industrials (12.49%), Energy (7.4%), Materials (4.25%), Utilities (4.23%) and Consumer Staples (1.09%).
While UAE has garnered around $18 million, QAT has managed to amass $7.5 million following its launch. Both the funds charge 61 basis points as fees.
How Might these Fit in a Portfolio?
The Gulf countries are noted for their huge oil reserves which have led to high GDP per capita. Many of these countries have spent substantial resources on building institutions and introducing business friendly reforms. Due to expansionary fiscal policies and low interest rates, economic activity has remained steady in recent years.
Also, the low interest rate environment prevailing in this region is expected to boost economic activity. As per IMF, both Qatar and UAE are expected to clock higher GDP growth than the broader developed markets.
Qatar and UAE equity markets have seen spectacular performance since the start of 2013. The Dubai Financial Market (DFM) was the second best financial market in the world and returned an astounding 107.6% in 2013. Moreover, Abu Dhabi returned an exceptional 63% last year.
Competition & Bottom Line
The funds are the first products seeking to provide single-country exposure to Qatar and UAE and thus might enjoy the first-mover advantage.
However, the funds might face some competition from Market Vectors Gulf States Index ETF (MES) and WisdomTree Middle East Dividend Fund GULF (see 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 25.64% exposure to Qatar. On the other hand, GULF has the highest exposure to Qatar (31.68%), followed by UAE (27.41%). All the same, the funds have more than half of their assets invested in Qatar and UAE combined.
Unlike the U.S., Gulf markets have performed exceptionally well so far this year. Both MES and GULF have added more than 20% in 2014. MES charges 99 basis points as fees, higher than the 88 basis points charged by GULF (also see Global X Files for Saudi Arabia ETF).
Thus given the continued outperformance from these Gulf States and a comparatively lower expense ratio for the newly launched funds, these new iShares products might be able to garner more assets in the coming days.
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WISDMTR-ME DIV GULF: ETF Research Reports
MKT VEC-GULF ST MES: ETF Research Reports
ISHARS-MS QATAR (QAT): ETF Research Reports
ISHARS-MS UAE (UAE): ETF Research Reports
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The launch of these products could not be better timed, given that both the United Arab Emirates (UAE) and Qatar will be upgraded from frontier to emerging markets status from June this year. These nations will be reclassified from the frontier markets index to the MSCI Emerging Markets Index, making them the very first in the Middle East (read: EGShares Launches Blue Chip Emerging Market ETF).
UAE & QAT in Focus
UAE seeks to offer exposure to companies headquartered or listed in the UAE by tracking the MSCI All UAE Capped Index. The fund holds a small basket of 26 stocks, with the top holding, Emaar Properties, alone occupying more than one-fifth of total fund assets. Apart from the top holding, none of the stocks have double-digit exposure in the fund. This highlights some concentration risk in the top holding.
Sector-wise, the fund has quite the exposure to Financials (70.2%), suggesting concentration risk on this front as well. Apart from this, the fund has 19.5% allocation to Industrials, though it has low single-digit exposure to Energy and Healthcare sectors (read: 3 Energy ETFs to Buy on the Ukraine Crisis).
QAT provides exposure to the Qatar market by tracking the MSCI All Qatar Capped Index. The fund holds 26 stocks in Qatar with some concentration risk. The fund has more than 30% exposure to the top three stocks.
Sector-wise, Financials again takes the top spot having more than 50% allocation, followed by Telecommunication (14.17%), Industrials (12.49%), Energy (7.4%), Materials (4.25%), Utilities (4.23%) and Consumer Staples (1.09%).
While UAE has garnered around $18 million, QAT has managed to amass $7.5 million following its launch. Both the funds charge 61 basis points as fees.
How Might these Fit in a Portfolio?
The Gulf countries are noted for their huge oil reserves which have led to high GDP per capita. Many of these countries have spent substantial resources on building institutions and introducing business friendly reforms. Due to expansionary fiscal policies and low interest rates, economic activity has remained steady in recent years.
Also, the low interest rate environment prevailing in this region is expected to boost economic activity. As per IMF, both Qatar and UAE are expected to clock higher GDP growth than the broader developed markets.
Qatar and UAE equity markets have seen spectacular performance since the start of 2013. The Dubai Financial Market (DFM) was the second best financial market in the world and returned an astounding 107.6% in 2013. Moreover, Abu Dhabi returned an exceptional 63% last year.
Competition & Bottom Line
The funds are the first products seeking to provide single-country exposure to Qatar and UAE and thus might enjoy the first-mover advantage.
However, the funds might face some competition from Market Vectors Gulf States Index ETF (MES) and WisdomTree Middle East Dividend Fund GULF (see 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 25.64% exposure to Qatar. On the other hand, GULF has the highest exposure to Qatar (31.68%), followed by UAE (27.41%). All the same, the funds have more than half of their assets invested in Qatar and UAE combined.
Unlike the U.S., Gulf markets have performed exceptionally well so far this year. Both MES and GULF have added more than 20% in 2014. MES charges 99 basis points as fees, higher than the 88 basis points charged by GULF (also see Global X Files for Saudi Arabia ETF).
Thus given the continued outperformance from these Gulf States and a comparatively lower expense ratio for the newly launched funds, these new iShares products might be able to garner more assets in the coming days.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
WISDMTR-ME DIV GULF: ETF Research Reports
MKT VEC-GULF ST MES: ETF Research Reports
ISHARS-MS QATAR (QAT): ETF Research Reports
ISHARS-MS UAE (UAE): ETF Research Reports
To read this article on Zacks.com click here.
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
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