Saudi Arabia, the largest producer in the Organization of Petroleum Exporting Countries, can now be accessed by U.S. investors via an exchange traded fund with Thursday's debut of the iShares MSCI Saudi Arabia Capped ETF (NYSE: KSA).
The iShares MSCI Saudi Arabia Capped ETF is the first dedicated ETF for the Arab world's largest equity market. The new Saudi ETF was made possible by the kingdom's efforts to open its financial markets, though on a somewhat limited, to foreign investment in a bid to reduce the economy's dependence on oil.
The iShares MSCI Saudi Arabia Capped ETF follows the MSCI Saudi Arabia Investable Market Index (IMI) 25/50 Index. Though Saudi Arabia is home to some of the largest oil reserves in the world, the country's major oil producers are private, state-controlled companies so KSA and the MSCI Saudi Arabia Investable Market Index (IMI) 25/50 Index are not as energy-heavy as some investors might suspect.
“Top sector exposures in the index are financials, materials and telecommunications. The index does not have a significant weight to the energy sector because key oil companies in the country are state-owned and inaccessible to investors,” according to an iShares statement.
At the end of August, financial services, materials and telecom stocks combined for over 77 percent of the MSCI Saudi Arabia Investable Market Index's weight, according to MSCI data.
Index provider MSCI currently does not classify Saudi Arabia as an emerging or frontier market, however it is a member of the MSCI Gulf Cooperation Council (GCC) Countries Index, according to MSCI.
Near the end of the second quarter, the Tadawul Stock Exchange, Saudi Arabia's major equity bourse, had a market value of nearly $570 billion. By comparison, at that time the Qatari stock market and the two major equity markets in the United Arab Emirates, the Abu Dhabi S.E. and the Dubai Financial Market, had combined market values of $387.4 billion.
However, the iShares MSCI Qatar Capped ETF (NASDAQ: QAT) and the iShares MSCI UAE Capped ETF (NASDAQ: UAE) have been available to U.S. investors since April 2014. The Global X MSCI Nigeria ETF (NYSE: NGE) is the other ETF tracking stocks in an OPEC member state.
"Saudi Arabia’s GDP is forecasted to grow by around 3% annually for the next three years, supported by real growth in non-oil sectors which have outpaced the oil sector. Saudi Arabia’s equity market has historically exhibited low correlation to the U.S. equity market, and may appeal to investors seeking to diversify outside the U.S.,” according to iShares.
With the debut of KSA, iShares now issues 61 single-country ETFs with a combined $66 billion in assets under management. Global X and Van Eck have also filed plans for Saudi Arabia ETFs.
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