Van Eck Files For Saudi Arabia ETFs

Van Eck, the surging ETF issuer best known for its commodity and country specific products, looks to be at it again in the Middle East space. The company currently has several ETFs targeting the region, including ones that are focused on Egypt (EGPT - ETF report) and the broad region via the Gulf States Index ETF (MES - ETF report). Now, Van Eck appears to be expanding further into the Middle East into one of the more controversial and well-known nations in the region, Saudi Arabia.

In the recent SEC filings, Van Eck revealed plans for two new ETFs targeting Saudi Arabia; the Saudi Arabia ETF and the Saudi Arabia Small-Cap ETF. While some key information was not yet available, ticker symbols and expense ratios were not released, we have highlighted some of the main points from the SEC documents below:

Saudi Arabia ETF

This proposed fund looks to track, before fees and expenses, the price and yield performance of the Market Vectors Saudi Arabia Index. This benchmark looks to give exposure to publically traded companies that are domiciled and listed in the country or those that generate at least 50% of their revenues from the nation.

Saudi Arabia Small Cap ETF

This proposed product looks to track a similar index, following the Market Vectors Saudi Arabia Small Cap Index before fees and expenses. Much like other Van Eck products, this one will focus on companies that are either domiciled in the country or those that derive at least 50% of revenues from the nation.

Interestingly, the product will look at countries in the bottom 90% of the range of full free-float market capitalization of all Saudi equities. This is in stark contrast to many other small cap ETFs which look at companies that are—generally—in the bottom 10%-15% in terms of size (see more in the Zacks ETF Center).

Saudi Stock Market

The main market in the country is known as the Tadawul and currently consists of about 144 firms. Trading is done from Saturday to Wednesday, leaving Thursday and Friday as off days for this market.

Some of the biggest companies by value of shares traded include Atheeb Telecom, Jabal Omar, Nama Chemicals, and Saudi Basic Industries Corp.

Additionally, investors should note that there have been some big changes as of late in the market and that more could be coming down the pike. The Capital Market Authority of the nation recently said it would allow foreign firms to list on the Saudi exchange, a huge step to a more liquid market (read Three Overlooked Emerging Market ETFs).

Furthermore, MSCI looks to reintroduce coverage of the country while the Kingdom also looks to give foreign investors the ability to purchase shares in the companies on the bourse, a likely prerequisite for a smooth operation of these proposed funds.

Saudi Economy

While the stock market of the country may be relatively diversified from a sector perspective, the country’s economy is undoubtedly run by oil. The nation controls nearly one-fifth of the total proven petroleum reserves and is consistently one of the biggest producers and exporters of the vital product. Oil currently accounts for the majority of GDP and government revenues, while it is a key source of jobs as well.

The government has tried to diversify away from this heavy crude oil dependence, but it has limited success so far. Steps have been made to boost the tourism and financial sectors, but it appears as though the country is losing out to others in the region such as Qatar and the United Arab Emirates (read Three ETFs For An Iranian Crisis).

Still, with a high population growth rate and growing discontent in the Middle East, more will have to be done in order to prevent turmoil in the region. Clearly, the country has a favorable current account balance and can afford to do more, only time will tell if its actions are enough to appease the growing youth population across the Kingdom.

Other Middle East ETFs

These ETFs, if ever able to surpass the SEC hurdles and some of the structural problems that come with buying such a closed market, could be interesting picks for more Middle East exposure. However, if investors want access to the region now, there are a few good choices.

The aforementioned EGPT and MES are good picks for investors who are, respectively, looking for concentrated Egyptian exposure or the broad Gulf States area. However, both of these products have low volume and wide bid ask spreads (read Frontier Market ETF Investing 101).

The last option comes from PowerShares and its MENA Frontier Countries Portfolio (PMNA - ETF report). Like the others on the list, this suffers from low volume levels, although it could offer the most diversified exposure profile across both the Middle East and North Africa.

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