ETF Chart of the Day: A Promising Region

Given the recent escalation in Middle East turmoil, it causes us to examine an ETF sub-category that focuses squarely on the region.

Currently there are seven ETFs classified in the “Middle East” none of which are extremely large in terms of asset sizes, but still worth watching in terms of being able to provide a sense of direction for their respective markets. EIS (iShares MSCI Israel Capped ETF, Expense Ratio 0.62%) has been around since 2008 and is the largest ETF in this segment with about $119 million in assets under management, but it only trades about 35,000 shares daily and is a somewhat inactive product at times.

EIS has had a tough week and although bouncing to some degree today, it is trading at its lowest levels since this spring. EIS holds fifty four names currently, with its largest weightings in Teva Pharmaceutical (25.33%) and Bank Hapoalim BM (10.14%).

Clearly, there is some individual security risk here in TEVA being more than a quarter of the portfolio for the good or the bad. GAF (SPDR S&P Middle East & Africa ETF, Expense Ratio 0.59%) from a “name” standpoint
sounds like it is designed for at least some Middle East equity access, but when we look at the underlying index, 93% of the portfolio is invested in South Africa. There are much lesser weightings in Egypt (4.28%) and Morocco (2.46%), two countries not currently embroiled in any large scale conflicts that we know of.

Moving down the list we see GULF (WisdomTree Middle East Dividend ETF, Expense Ratio 0.88%) which also debuted in 2008, and this fund has about $56 million in assets under management. From a country diversification standpoint the underlying index is weighted as the following: Qatar (30.64%), UAE (29.51%), Kuwait (14.39%), Egypt (10.05%), Morocco (7.36%), Oman (3.95%), Jordan (2.07%), and Bahrain (1.99%).

GULF has rallied impressively since its late June lows, trading handily above its 50 day MA at this point but daily volume remains muted. Other smaller, often newer ETFs to market in this space that we should watch closely are UAE (iShares MSCI UAE Capped ETF, Expense Ratio 0.61%), ISRA (Market Vectors Israel ETF, Expense Ratio 0.59%), QAT (iShares MSCI Qatar Capped ETF, Expense Ratio 0.61%), and MES (Market Vectors Gulf States Index ETF, Expense Ratio 0.98%).