UAE firm plans Abu Dhabi-listed ETF to play Saudi equities boom

A United Arab Emirates financial firm plans to create an exchange-traded fund focused on Saudi Arabian equities and list it on the Abu Dhabi Securities Exchange, tapping into surging regional demand for Saudi shares. Only a few exchange-traded fund (ETFs), which track indexes, are listed in the Gulf, and the planned product is believed to be the first cross-border ETF listed in the region and focused solely on Saudi Arabia, fund managers said.
ADS Investment Solutions, a subsidiary of ADS Securities, aims to list the ETF as soon as in the next few weeks, depending on regulatory approvals, Ryan Lemand, senior executive officer at ADS Investment, said on Tuesday. "We see value in investing in Saudi with a passively managed, systematic strategy, with minimal fees and minimising costs. An ETF is the best instrument for this," Lemand told Reuters.
Foreign investors have bought a net $2.7 billion of Saudi stocks so far this year, making Riyadh one of the hottest markets outside the developed world, and fund managers believe tens of billions of dollars may enter in the next two years. In March, index compiler FTSE Russell decided to add Saudi Arabia to its emerging market index starting in March 2019, and MSCI will decide whether to take the same action next month.
ADS Investment's ETF will track a new Saudi equities index developed with FTSE Russell. The index has been designed to minimise volatility and prevent excessive exposure to any particular stock or sector, FTSE Russell said in a statement. Lemand said the design would help the fund cope with the upcoming listing in Riyadh of oil giant Saudi Aramco , which is expected to raise tens of billions of dollars in the world's largest initial public offer of shares.
Many investors are concerned that because of Aramco's huge size, its listing could balance the market too heavily towards the oil sector, making the Saudi bourse essentially a bet on volatile oil prices. The new index will impose a cap on Aramco's weighting, Lemand said. The ETF will buy Saudi stocks through a qualified foreign institution licensed to invest directly in the Riyadh bourse. Lemand did not name the institution. He said initial capital for the fund had been allocated and it would start a marketing campaign in coming weeks, but declined to predict the size of the fund.