Invesco has launched a new European-domiciled ETF providing exposure to the equity market of Kuwait.
Kuwait is set to join the important MSCI Emerging Market Index in June 2020.
The Invesco MSCI Kuwait UCITS ETF (MKUW LN) has listed on London Stock Exchange in US dollars and comes seeded with $50 million in assets under management.
The fund offers investors a liquid and convenient vehicle to gain access to Kuwaiti equities ahead of the country’s promotion to emerging market status by index provider MSCI.
The ETF is linked to the MSCI Kuwait 20/35 Index, which it tracks via a swap-based replication process.
The index captures large and mid-cap securities and represents approximately 85% of the Arabian Gulf state’s total market cap. The largest security is capped at 35% and all other constituents are capped at 20%.
The index is reconstituted and rebalanced on a quarterly basis, although the 20/35 capping rule is enforced on a daily basis.
The index currently consists of nine stocks. In terms of exposure, well over half the index (59.7%) is allocated to the financials sector followed by communication services (18.1%), industrials (11.0%), and real estate (6.3%). The largest individual constituents are National Bank of Kuwait (27.5%), Mobile Telecom (18.1%), Kuwait Finance House (17.3%), Agility (11.0%), and Gulf Bank (6.7%).
The ETF comes with a management fee of 0.50% and a swap fee of 0.40%.
MSCI inclusion
MSCI plans to include Kuwait within the MSCI Emerging Markets Index in June 2020 subject to final approval which is expected to be granted in November.
The country’s graduation to emerging market status reflects efforts by the country’s securities markets regulator, the Capital Markets Authority, to deliver operational enhancements and regulatory upgrades to market structure and facilitate improved market access for international institutional investors.
At the time of its market classification review in June, MSCI’s Sebastien Lieblich, Global Head of Equity Solutions and Chairman of the Equity Index Committee, noted, “Kuwait’s Market Development Project has set the path for the seamless implementation of numerous regulatory and operational enhancements in the Kuwaiti equity market. These enhancements have significantly increased the accessibility level of the Kuwaiti equity market for international institutional investors and resulted in broad positive feedback from these investors on our reclassification proposal.”
Kuwait is expected to enter the MSCI Emerging Markets Index with a weight of approximately 0.5%. The inclusion is predicted to drive billions of dollars’ worth of flows into Kuwait’s equity market, given that an estimated $1.8 trillion of global assets use the MSCI Emerging Markets Index as their benchmark.
Index providers S&P Dow Jones Indices and FTSE Russell have already upgraded Kuwait to emerging market status.
Chris Mellor, Head of EMEA ETF Equity Product Management at Invesco, said, “With an index comprising financials, communication services, industrials, real estate, and materials sectors, our new ETF offers investors the opportunity to gain exposure to those companies at the heart of the long-term transformation taking place in Kuwait. In the shorter term, the inclusion into the MSCI Emerging Markets Index could drive significant inflows from asset managers needing to maintain benchmark weights.”
The fund is the second Kuwaiti ETF to launch in Europe following the introduction of the KMEFIC FTSE Kuwait Equity UCITS ETF (KUW8 LN) in April 2019. Launched through a partnership between Kuwait & Middle East Financial Investment Company (KMEFIC) and European white-label ETF platform HANetf, the fund comes with an expense ratio of 0.80% and tracks the FTSE Kuwait All-Cap 15% Capped Index. The index currently includes 17 constituents with the weight of any security capped at 15%.