Van Eck Drafts Saudi Arabia ETFs

May 04, 2012

 

Van Eck Global, the fund provider behind the Market Vectors ETFs, filed paperwork with U.S. regulators to bring to market two single-country equities ETFs focused on Saudi Arabia; one a broad portfolio, the other a small-cap fund.

Both the Market Vectors Saudi Arabia ETF and its small-cap counterpart, the Market Vectors Saudi Arabia Small-Cap ETF will each be built to replicate as closely as possible proprietary rules-based, modified capitalization-weighted, float-adjusted indexes that tap into the Saudi Arabian market.

The funds appear to give first-of-a-kind access to the world’s most important oil-driven economy—one that is just now beginning to open up to foreign investment. The Saudi Stock Exchange, Tadawul, represents the bulk of the equity market capitalization of all the Gulf Cooperation Councils stock exchanges. Those include Saudi Arabia, the United Arab Emirates, Bahrain, Oman, Qatar and Kuwait.

Still, investing in Saudi Arabia isn’t without risks, and Van Eck’s prospectuses went into some detail about the “heightened” risks of accessing the Middle Eastern country as opposed to investing in developed markets.

For example, Van Eck listed the risk of government intervention on trade and taxation, as well as the possibility of expropriation and nationalization of assets. Chances of armed conflict and overall political instability also made the list of warnings.

“Issuers in Saudi Arabia are subject to less stringent requirements regarding accounting, auditing, financial reporting and record keeping than are issuers in more developed markets,” the company added in the filings.

The Details

Companies included in the indexes and the funds need to generate at least half of their revenues from Saudi Arabia, or be domiciled and publicly traded in that country, the company said in the filing.

Interestingly, both filings stipulate that eligible companies must have at least $150 million in market capitalization and meet similar liquidity requirements to make the cut for either fund.

A notable difference in the selection process between the broader ETF and the small-cap fund is that the latter will canvass the “bottom 90-98 percent of the range of full free-float market capitalization of all Saudi Arabian companies.”

It isn’t clear how much overlap in exposure there’ll be between the two funds, if any.

The portfolios will be rebalanced quarterly.

Van Eck didn’t disclose proposed tickers or fees in either filing.

 

 

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