Published:
August 4, 2008
WisdomTree has just launched a new
fund targeting the oil-soaked Middle
East region. WisdomTree Middle
East Dividend (Nasdaq: GULF, $24.74)
is aptly named GULF and will join a
small, but growing, contingent of
funds targeting stocks in Egypt,
Bahrain, Kuwait, Jordan and several
other countries.
Though still tiny by Western
standards, these markets are growing
rapidly and are already home to
companies with a combined market
capitalization of $815 billion --
about 2% of the world's total. That
is a figure that will almost
assuredly be rising swiftly in the
years ahead.
While the S&P 500 has been stuck in
neutral over the past three years,
Middle East markets have flourished.
According to Bloomberg, over that
time stocks have jumped +66% in
Kuwait, +97% in Egypt, and a
stunning +153% in Morocco.
As you might expect, soaring crude
prices have played a role. Three of
the fund's target markets (Kuwait,
Qatar and the United Arab Emirates)
produce a combined 5.75 million
barrels of oil per day, almost
one-fifth of OPEC's total
production.
And with massive amounts of wealth
being transferred from the developed
world into this oil-producing
region, governments are flush with
trillions in petrodollars -- which
are being heavily spent on
infrastructure and other projects to
stimulate economic growth. As a
result, per-capita incomes are
rising, foreign capital is flowing
in, and countries across the board
are all projected to enjoy racy GDP
growth of around +5% or better over
the next five years.
Yet, investors unnerved at the
prospect of being overly dependent
on commodity prices can relax. Most
oil companies are state-owned rather
than publicly traded, so energy
stocks only account for a small
portion of GULF's portfolio --
banks, telecoms and materials all
carry a much heavier weighting.
For an expense ratio of 0.88%,
investors can track the performance
of dozens of the region's premier
companies -- which, until recently,
were essentially off-limits to
outsiders. The index itself is set
up to ensure that components are
liquid (they must have a monthly
trading volume of 250,000 shares or
more), well capitalized (market caps
of $200 million or greater) and pay
solid dividends (minimum annual
dividend payments of $5 million).
The 100 largest companies that meet
these requirements are eligible to
be included in the index, and
members are weighted according to
dividend distributions. In other
words, those with heftier payouts
have a larger weighting and greater
impact on returns. Backtested data
suggests this approach is working
wonders -- the index is showing
gains of +26.7% over the last three
years. The underlying index also
sports a yield of 5.3%, so
shareholders can reasonably expect
to see a payout in that neighborhood
before expenses.
All of the evidence points to
continued long-term success for
Middle East markets. For now, GULF
looks to be a worthy contender in
this group. Expenses are competitive
for this particular asset class,
backtested returns are superior and
the focus on dividends should lead
to both steady income and reduced
volatility.
Nathan Slaughter
Editor
The ETF Authority
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