ETF For Investing In The Middle East

July 23, 2014

Saudi Arabia could be landing in a fund soon.

MES and GULF 1-Year

Chart courtesy of StockCharts.com

If the financial markets of the Middle East haven't been on your investment radar, the time may be coming. According to the Wall Street Journal, Saudi Arabia plans to open its markets to foreign investors and, as the largest equity market in the Middle East, it's a big deal.

But to be sure, many of the Middle East's financial markets have had a tumultuous few years: Broad indexes tied to the United Arab Emirates and Qatar first rallied 154 percent and 81 percent, respectively, before the UAE-based index slid 17 percent and the Qatar-based index fell 18 percent. Point is, this isn't your grandpa's equity investment, and investors better be ready for volatility.

These are the ETFs that target the Middle East:

  • The Market Vectors Gulf States ETF (MES | D-71) provides exposure to the largest companies that are incorporated in or derive the majority of their revenues from GCC (Gulf Cooperation Council) countries. The total exposure to each country is weighted by its GDP. Because Saudi Arabia bars foreign investors from its markets, MES currently doesn't allocate any assets to Saudi securities, but if Saudi Arabia opens its doors, MES will likely make large allocations to the country.
  • The WisdomTree Middle East Dividend ETF (GULF | D-91) tracks a dividend-weighted index of companies from Kuwait, Qatar, UAE, Egypt, Morocco, Oman and Jordan. When compared with MES, GULF includes exposure to countries outside the GCC (Egypt, Morocco and Jordan), and excludes GCC-heavyweight Saudi Arabia.

Regardless of their relative differences, MES and GULF both allocate the majority of their assets to Qatar, UAE and Kuwait. Be careful though—both funds charge high fees, and neither fund is tremendously liquid, so all-in costs may run high here.

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