Franklin Templeton has launched three new emerging market ETFs in Europe including a Saudi Arabian equities fund that undercuts all existing rivals on price.
European investors can now access pure-play Saudi Arabian equities exposure for an annual cost of just 0.39%.
The Franklin FTSE Saudi Arabia UCITS ETF has been listed on London Stock Exchange in US dollars (Ticker: KSA LN) as well as on Xetra (FLXS GY) and Borsa Italiana (SAUDI IM) in euros.
The fund comes with an industry-leading expense ratio of 0.39%, setting it apart from higher-cost options such as the $420 million iShares MSCI Saudi Arabia Capped UCITS ETF (IKSA LN), which has an expense ratio of 0.60%, and the $50m Invesco MSCI Saudi Arabia UCITS ETF (MSAU LN), which costs 0.50%.
The ETF is linked to the FTSE Saudi Arabia 30/18 Capped Index which covers large- and mid-cap Saudi stocks weighted by market capitalization. The index differs from the MSCI Saudi Arabia 20/35 Capped Index, used by the two competing products, by incorporating a 30% cap on the largest holding and an 18% cap on other constituents, offering a more diversified exposure compared to the 35/20 capping rule on the MSCI index.
By capping the largest holdings, all three indices seek to reduce concentration risk and offer investors a more balanced exposure across various economic sectors within Saudi Arabia.
The FTSE Saudi Arabia 30/18 Capped Index, in particular, is mainly exposed to firms from the financials sector, collectively comprising 39.3% of the total weight, followed by basic materials (15.8%), energy (11.7%), utilities (9.2%), and telecommunications (7.9%). Leading the index’s constituent weights is Al Rajhi Banking & Investment (13.6%), followed by energy giant Saudi Aramco (9.5%), ACWA Power (7.8%), and Saudi National Bank (7.6%).
Examining the ETF’s investment case, Franklin Templeton notes that the Saudi Arabian equity market is the largest in the Gulf Cooperation Council (GCC) region, and as the world’s largest oil exporter, the country plays a vital role in global energy markets. Furthermore, Saudi Arabia is also pursuing an ambitious economic diversification program, dubbed Vision 2030, aiming to reduce dependence on oil by attracting foreign investment and expanding sectors such as technology, finance, and renewable energy.
Since opening its markets to foreign investors in 2015, Saudi Arabia’s weight in major emerging market indices has grown significantly, currently representing over 4% of the FTSE Emerging Market Index.
Adam Spector, EVP of Global Advisory Services at Franklin Templeton, commented: “Franklin Templeton has been a long-term investor in Saudi Arabia’s markets, and we’re excited to offer international investors an affordable way to participate in the country’s growth story, especially as it transforms into a diversified economy.”
Alongside the Saudi Arabia ETF, Franklin Templeton also launched the Franklin FTSE Emerging Markets UCITS ETF (EMGM LN) and Franklin FTSE Emerging ex-China UCITS ETF (EXCN LN), each with an expense ratio of just 0.11%. Collectively, these funds allow investors to obtain broad emerging markets exposure while allowing the flexibility to manage China-related risks more precisely within their portfolios.