Invesco has launched a new ETF – the Invesco MSCI Saudi Arabia UCITS ETF (MSAU LN) – on London Stock Exchange that provides exposure to companies listed in Saudi Arabia. It is the first ETF in Europe to offer investors targeted exposure to Saudi Arabian stocks and the domestic Saudi economy.
Chris Mellor, head of EMEA ETF equity and commodity product management at Invesco.
The ETF, which is tradeable in US dollars, tracks the MSCI Saudi Arabia 20/35 Index.
The country index, which is expected to be acceded to full emerging market status by MSCI, has constraints to ensure it meets UCITS requirements for diversification and avoid over-concentration in certain parts of the economy.
The weight of the largest constituent is capped at 35%, and the weight of any other single entity is constrained to 20%.
The index has 32 constituents and covers approximately 85% of the free float-adjusted market capitalisation in Saudi Arabia.
It is heavily exposed to two sub-industries: diversified banks (41.3%) and commodity chemicals (26.5%). The third largest sector – telecommunication services – accounts for just 8.6% of the total weight.
Using back-tested performance, the index has generated an annualised return of 23.9% since 31 May 2016, performing exactly in line with the MSCI Saudi Arabia Index.
The fund tracks its index indirectly using swaps. It charges a 0.50% management fee as well as a 0.20% swap fee.
Saudi Arabia began opening its equity markets to foreign investors in 2015, and has since eased foreign investor requirements and brought trade settlement more into line with global standards. This has contributed to a more favourable view of the market from index providers such as MSCI.
If reclassified to EM, the country will have an estimated weighting of around 2.3% in the index, although this would be significantly higher once Aramco and other IPOs are factored in. Aramco, the state-owned oil company, is likely to launch its IPO in 2019 and could raise up to $100 billion, making it the largest IPO in history.
Chris Mellor, head of EMEA ETF equity and commodity product management at Invesco, said, “Saudi Arabia is in the early stages of an exciting transformation. The reforms within the ‘Saudi Vision 2030’ programme are intended to reduce the economy’s dependency on government funding and oil exports.
“They have a number of objectives, including increasing the contribution of private sector consumption to GDP, the number of Saudis working in the private sector and the use of solar and other renewable energy sources. They also want to encourage major domestic companies to expand across borders and into global markets.”
Investors seeking a more diversified exposure to the Middle East may wish to consider DWS’s Xtrackers MSCI GCC Select Swap UCITS ETF (XGLF LN) which provides equity exposure to Middle Eastern Gulf States. Saudi Arabia is the largest country exposure, accounting for 62.3% of the total weight. Most of the remaining exposure is dedicated to stocks listed in Qatar (15.4%), The UAE (12.4%) and Kuwait (7.8%). This ETF has a fund all-in fee of 0.65% plus a swap fee of 0.33% and approximately £20 million in assets under management.