Now Is The Time For Middle East ETFs (GULF, MES, PMNA, FM, EGPT)
The thought of investing in Qatar or Kuwait may seem like a daunting task for most American investors. When in reality it could be as simple as buying one ETF in your online brokerage account.
For obvious reasons most individual investors believe the risk of investing in Middle Eastern countries outweighs any potential reward. There are risks in the Middle East that are unique to the region, but there are also benefits that other parts of the world do not have access to.
One such benefit is that two of the regions booming nations, Qatar and U.A.E. are set to join the MSCI Emerging Markets Index in June of this year. This will force funds that track the index to buy into stocks in the two countries.
It is not as if the region needs to provide a reason for investors to put money in their stock markets. In 2013 the Dubai Financial Market was tops in the region with a gain of 108 percent, followed by the Abu Dhabi Securities index with a gain of 63 percent. Qatar’ stock market was the fifth best in the region with a gain of 24 percent. Since the bottom in March 2009 the Qatari stock market is up 139 percent.
The WisdomTree Middle East Dividend ETF (NYSE: GULF) is a $26.7 million fund that is up 35 percent in the last 12 months. The ETF is heavily weighted in Qatar (32 percent), U.A.E. (26 percent), and Kuwait (15 percent). While most would assume energy is the largest sector in the ETF, it is not the truth. The financials make up 58 percent and the telecom sector accounts for 23 percent. The ETF charges an expense ratio of 0.88 percent.
Market Vectors Gulf States ETF (NYSE: MES) has $16.8 million in assets under management and has a similar approach to GULF. The U.A.E. accounts for 37 percent, Qatar 24 percent, and Kuwait 22 percent. The financials are the largest sector at 61 percent and the industrials make up 18 percent. The ETF charges an expense ratio of 0.99 percent and it is up 36 percent in the last 12 months.
PowerShares MENA Frontier Countries ETF (NYSE: PMNA) has $16.3 million in assets and concentrates on the frontier countries of the Middle East and North Africa. The U.A.E. makes up 28 percent, Kuwait 24 percent, Qatar 20 percent, and Egypt 18 percent. Financials are 65 percent of the ETF with telecom coming in at 20 percent. The expense ratio is 0.70 percent and the 12-month return is 17 percent.
iShares MSCI Frontier 100 Index ETF (NYSE: FM) has $455 million in assets and will invest in 100 stocks that are based in frontier countries. The ETF is not a pure play on the Middle East, however it does have large exposure to the region. The top countries include Kuwait (20 percent), Qatar (18 percent), U.A.E. (16 percent), and Nigeria (14 percent). Once again financials lead the way at 54 percent and telecom comes in second at 14 percent. The return over the last 12 months has been 20 percent and the expense ratio is 0.79 percent.
GULF or MES?
An investor that wants a to target the Middle East specifically should narrow their choices down to GULF and MES. The two ETFs are similar in nature and share five stocks in the top ten holdings. But the one glaring difference is that GULF has 18 percent of its allocation in Egypt and Morocco and MES does not invest in the two countries.
MES has a 10 percent allocation in Oman versus only 4 percent in GULF. Performance and fees are similar, therefore the deciding factor would be the inclusion of Egypt and Morocco. To spread light on the decision, the Market Vectors Egypt ETF (NYSE: EGPT) is up 14 percent in the last 12 months. The facts are laid out; the decision is now in the hands of the investor.
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