“The emerging markets promotion is one of the catalysts driving volumes and share price appreciation. GULF’s underlying index is up about 23% since MSCI made the announcement,” said Siracusano.
While the looming loss of Qatar and UAE is expected to have some impact on funds that benchmark to MSCI frontier markets indices, Siracusano confirmed WisdomTree has not made any announcements regarding changes to GULF’s underlying index. With Qatar and UAE expected to initially account for scant percentages of the MSCI Emerging Markets Index, GULF’s status as one of the best ETF avenues to more advanced Middle East markets is cemented. [A Surprising Region Leading Global ETFs in 2014]
There is, however, more to GULF’s story than just a market classification promotion for Qatar and UAE.
“It’s not unusual for hedge funds and other tactical traders to buy country exposure in advance of index changes, but there are other things going on in these countries to attract interest,” said Siracusano. “Dubai is an emerging financial hub. After being ignored for a long time, the Gulf states are just beginning to get back on peoples’ radars.”
There are valid reasons why that is the case. The dividend yield on GULF’s index is almost 5.2% and for that privilege, investors will find comparable valuations to what they would find in discounted emerging markets. Then there are the low correlations. Since inception, the WisdomTree Middle East Dividend Index has an average correlation of 0.764 to the MSCI Emerging Markets Index and the S&P 500, according to WisdomTree data. The index’s beta against the MSCI Emerging Markets Index is just 0.54.
Investors are taking notice. GULF is up 9.5% year-to-date and its shares outstanding count has doubled in the past year.
WisdomTree Middle East Dividend Fund