iShares, the exchange-traded fund division of asset management company BlackRock, has unveiled the iShares MSCI Saudi Arabia Capped ETF (NYSE Arca: KSA), offering investors an opportunity to hold a basket of locally listed Saudi Arabian stocks. The fund tracks the performance of the MSCI Saudi Arabia IMI 25/50 Index and is the first western-listed ETF to track Saudi Arabia’s stock market which opened to foreign investors in June 2015.
Saudi financial sector firms make up a significant proportion of the new ETF.
Daniel Gamba, head of BlackRock’s iShares American institutional business, said: “This new iShares MSCI Saudi Arabia Capped ETF further extends the range of options for investors looking to express international single country views via ETFs, and provides direct access to a market with growth potential. We are pleased to partner with our clients as they seek to navigate these new markets.”
Gross domestic product (GDP) in the Arabian Peninsula country is forecast to grow by 3.0% per annum for the next three years, according to Bloomberg. Most of this growth is expected to come from non-oil sectors as the oil industry continues to struggle with historically low crude prices. Furthermore, the correlation between Saudi Arabia’s equity market and the S&P 500 has historically been low, offering the potential for portfolio diversification to US investors.
Continuing on this theme, Gerardo Rodriguez, managing director and senior emerging markets strategist at BlackRock, said: “Investors are increasingly looking to emerging and frontier markets for diversification in their global portfolios. As the largest economy and equity market in the Middle East, Saudi Arabia’s recent opening could represent a compelling opportunity for those looking to broaden their exposures.”
The recent move by the Saudi government to attract foreign investors is a crucial step in liberalising their capital markets and may lead to the country’s inclusion in broad indices such as the MSCI Emerging Markets Index. A Wall Street Journal report predicts a 2% allocation to the country within this index. This would boost demand for Saudi stocks by an estimated $34bn from benchmarked funds, providing a bullish long-term outlook for current investors.
The ETF has significant exposure to the financials (33.8%), materials (29.9%), telecommunications (11.3%) and consumer staples (9.1%) sectors, and contains 58 securities, of which the main holding was in the manufacturing company Saudi Basic Industries (18.5%), while Saudi Telecom (9.3%) and National Commercial Bank (7.7%) also played notable roles. Exposure to the energy sector is currently only 1.4% as the country’s oil industry is tightly controlled by the state and not subject to public trading. Data as of 25 September 2015.
The fund has a total expense ratio (TER) of 0.74%.
iShares now offers 61 ETFs targeting single-country exposure, totalling over $66bn in AUM across the fund range. Other single country iShares ETFs in the region include:
iShares MSCI Qatar Capped ETF (Nasdaq: QAT) TER of 0.61%.
iShares MSCI UAE Capped ETF (Nasdaq: UAE) TER of 0.62%.
iShares MSCI Israel Capped ETF (NYSE Arca: EIS) TER of 0.62%.
iShares MSCI Turkey ETF (NYSE Arca: TUR) TER of 0.62%.