HSBC Global Asset Management has launched a new ETF in Europe which provides exposure to the equity market of Saudi Arabia.
The fund is the third pure-play Saudi Arabia ETF to be launched in Europe over the past year.
The HSBC MSCI Saudi Arabia 20/35 Capped UCITS ETF (HMSA LN) has listed on the London Stock Exchange where it trades in US dollars.
Further listings are planned across key markets in Europe.
The fund is the third pure-play Saudi Arabia ETF to be launched in Europe over the past year, following listings by Invesco and BlackRock.
The quick succession of launches reflects increased investor demand for Saudi Arabian equities following MSCI’s decision to include the Kingdom in its flagship emerging markets index in a two-step process taking place in May and August 2019.
Olga De Tapia, Head of EMEA ETFs Sales at HSBC Global Asset Management, said, “Saudi Arabia is a market that is increasingly relevant to global investors as it makes further progress in its evolution to becoming an international capital markets hub. The HSBC MSCI Saudi Arabia 20/35 Capped UCITS ETF provides investors with a quick and cost-efficient way to access this significant opportunity.”
Carmen Gonzalez-Calatayud, Director and Senior Product Specialist, ETFs at HSBC Global Asset Management, added, “The launch is a direct response to increased demand from investors. Our goal, therefore, has been to ensure that the solution we develop is fit for purpose and efficient to implement. Our new ETF provides an excellent building block to future-proof our clients’ portfolios and can simply be added to existing allocations, meaning there is no need to reallocate.”
The fund is linked to the MSCI Saudi Arabia 20/35 Capped Index which measures the performance of Saudi Arabian shares included in the MSCI Emerging Markets Index.
The index comprises 30 large- and mid-cap stocks which collectively represent approximately 85% of the free float market capitalization in Saudi Arabia. Its construction methodology includes rules-based constraints to ensure it meets UCITS requirements for diversification, namely that 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% weight) of the index, while the materials sector accounts for a 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 almost 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 has an Ongoing Charges Figure (OCF) of 0.50%, excluding transaction costs. In comparison, the iShares MSCI Saudi Arabia Capped UCITS ETF (IKSA LN) comes with an OCF of 0.60% (including known transaction costs), while the Invesco MSCI Saudi Arabia UCITS ETF (MSAU LN) has ongoing charges of 0.50% plus an annual swap fee of 0.20%.
All three ETFs track the same underlying index.