Best Performing Single Country ETFs

May 30, 2018

It's not a great time to invest outside the U.S.—at least, not by using single-country ETFs. Most single-country ETFs have lost money so this year, with an average year-to-date return of -1.43%.

Yet even among slim pickings, a few high-performers stand out. Here are the three-best-performing single-country ETFs of 2018 so far:

 

Best-Performing Single-Country ETFs Of 2018
Ticker Fund Expense Ratio AUM ($M) YTD Return 1-Year Return
KSA iShares MSCI Saudi Arabia ETF 0.74% 216.87 16.04% 23.33%
CHIE Global X China Energy ETF 0.65% 3.27 14.29% 28.73%
EGPT VanEck Vectors Egypt Index ETF 0.94% 76.32 12.23% 32.28%

Sources: ETF.com, FactSet. Data as of May 24, 2018.

 

At a cursory glance, this list seems to be a story about energy; specifically, rising crude oil prices. But first impressions can be misleading. Looking under the hood of these three funds reveals a deeper story about the power of economic reforms and the evolution of market diversity in emerging economies.

Rising Optimism In Saudi Arabia

The best-performing ETF of 192 single-country ETFs is the iShares MSCI Saudi Arabia ETF (KSA), a total-market fund that captures the Saudi Arabia equity market. Year-to-date, KSA has risen 16.04%.

 

 

KSA, the only Saudi Arabia ETF, is large, and popular with investors. To date it has $224 million in assets under management (AUM) and $190 million in new net inflows for the year.

Contrary to expectation, KSA only provides limited exposure to energy (22%); most of the country's oilfields and energy companies are privately owned by the royal family. Instead, the bulk of KSA's portfolio is in financials (41%), though mega-cap Saudi Basic Industries (SABIC), a basic materials company, alone comprises 11% of the fund.

That positions KSA well to ride the optimism generated by several social and economic reforms over the past few years, reforms that have modernized the country and attracted new industries.

Since June 2015, when Saudi Arabia first opened its markets to foreign investment, huge corporations like Dow Chemical and Lockheed Martin have inked multibillion-dollar deals within the country. More recently, Saudi Arabian Crown Prince Mohammed bin Salman has pushed for greater social reforms, such as allowing women to drive and enter sports stadiums, and lifting bans on movie theaters and live concerts.

This modernization has convinced indexers to give Saudi Arabia a second look. FTSE Russell plans to add Saudi Arabia to its emerging markets index next year, with a starting weight of 2.7%; this could go higher if and when the IPO of oil giant Aramco goes through in 2019. Meanwhile, MSCI is currently weighing whether to include Saudi Arabia in its emerging market indexes. Its decision will be made by June.

KSA's expense ratio is 0.74%. Though not chump change, that's roughly average for Middle East and Africa (MEA) ETFs.

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