BlackRock launches MSCI Saudi Arabia ETF in Europe

Apr 16th, 2019 | By | Category: Equities

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BlackRock has launched a new ETF – the iShares MSCI Saudi Arabia Capped UCITS ETF (IKSA LN) – in Europe.

BlackRock launches MSCI Saudi Arabia ETF in Europe

The fund is the second ETF in Europe to offer pure-play exposure to Saudi Arabia’s equity market.

Listed on London Stock Exchange, the fund provides investors with pure-play access to Saudi Arabia’s equity market ahead of its planned upgrade to emerging market status in May.

The fund tracks the MSCI Saudi Arabia 20/35 Index, comprising 30 large- and mid-cap stocks and accounting for approximately 85% of the free float market capitalization in Saudi Arabia, through direct physical replication.

The index contains constraints to ensure it meets UCITS requirements for diversification. The weight of the largest constituent is capped at 35%, and the weight of any other single entity is limited to 20%.

Stocks from the financials sector make up nearly half (48.2%) of the index weight, while the materials sector accounts for another third (31.9%). The next largest sectors are communication services (8.5%) and consumer staples (4.1%).

The index’s performance is dominated by a few large companies with the top ten constituents accounting for three-quarters (74.1%) of the total weight. The largest stocks are Saudi Basic Industries (16.7%), Al Rajhi Banking (14.6%), National Commercial Bank (11.2%), Saudi Telecom (7.3%), and Samba Financial (6.5%).

The fund comes with a total expense ratio (TER) of 0.60% which is cheaper than the fees charged by the Invesco MSCI Saudi Arabia UCITS ETF (MSAU LN), the only other pure-play Saudi Arabia ETF available in Europe.

The Invesco ETF uses synthetic (swap-based) replication to track the same index underlying the iShares fund and charges a 0.50% management fee as well as a 0.20% swap fee. The fund has been well received by investors since its launch in June 2018, growing its assets under management to $350 million.

BlackRock already offers a Saudi Arabia ETF in the US – the iShares MSCI Saudi Arabia ETF (KSA US). This fund tracks the broader MSCI Saudi Arabia IMI 25/50 Index which consists of 69 constituents. The weight of the largest stock is capped at 25%, and the sum of all other stocks with weights above 5% is capped at 50%. The ETF houses $500m in AUM and comes with an expense ratio of 0.74%.

Upgrade to emerging market status

Following its Annual Market Classification Review in June 2018, MSCI announced that Saudi Arabia would be upgraded to emerging market status beginning in May 2019.

The country will be included in the flagship MSCI Emerging Markets Index in two phases, concurring with the May 2019 Semi Annual Index Review and the August 2019 Quarterly Index Review.

The MSCI Saudi Arabia Index, with 32 securities, is expected to have a weighting of approximately 2.7% within the MSCI Emerging Markets Index after full inclusion in August.

Supporting its decision to upgrade the country to EM status, MSCI cited positive market enhancements introduced by Tadawul (the country’s national stock exchange) and the Kingdom’s Capital Market Authority (CMA).

In particular, MSCI highlighted the Kingdom’s progress in implementing positive market reforms across a range of market accessibility criteria, including foreign ownership limits, easing of registration requirements for Qualified Foreign Investors (QFIs), enhancements to the clearing and settlement process, and introduction of securities lending and short selling.

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