Industry Updates

Which ETF provider won the race for Saudi Arabia in Q2?

Tom Eckett

a clock tower in Abraj Al Bait

Investors are going mad for the three pure-play Saudi Arabia ETFs available across European exchanges this year as they look to take advantage of MSCI’s decision to include the country in its emerging markets indices.

Overall, $2.5bn assets were piled into Saudi Arabia ETFs in Q2, according to data from Ultumus, a sign investors are very bullish about the prospects for the country’s economy.

However, the race to capture these huge inflows is on. Last quarter, the iShares MSCI Saudi Arabia Capped UCITS ETF (IKSA) saw the bulk of these flows ($1.5bn), despite only launching mid-way through April.

The Invesco MSCI Saudi Arabia UCITS ETF (MSAU), which launched last June, was second with $934m inflows, suffering $112m outflows in the final week of June.

Despite offering the lowest ongoing charges ratio (OCF) at 0.50%, the HSBC MSCI Saudi Arabia 20/35 Capped UCITS ETF (HMSP) only pulled in $14m. It is worth noting the product was launched in May.

ETF providers made the decision to launch pure-play Saudi Arabia products after MSCI’s decision to include the country in major indices last June.

It is thought the move will add $20bn assets to the country’s $536bn stock market from passive products alone.

Performance so far this year has been strong. The MSCI Saudi Arabia 20/35 Capped Net Return USD index, which all three ETFs track, is up 17.3% year-to-date.

However, despite the strong returns so far, investors need to look under the hood of the index and see what they are gaining exposure to.

The index has around 50% in financials and 30% in materials, two sectors that can be correlated to movements in oil prices while liquidity is another risk.

There is no doubt BlackRock came out on top in Q2 by seeing nearly $600m more assets than its nearest rival, Invesco, however, there is no doubt the US provider will be looking to bounce back in the second half the year.

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