Van Eck Launches Gulf States Index ETF

The new Market Vectors Gulf States Index ETF (MES) launched on July 23rd, the most recent region specific ETF to hit the market. The Gulf States fund is based on the Dow Jones GCC Titans 40 Index, which is comprised of public companies that are headquartered in countries that belong to the Gulf Cooperation Council (GCC) or that generate most of their revenues from countries belonging to the council. In addition to being part of the GCC, companies in the index must have market caps greater than $100 million, a 3-month average daily turnover of $1 million, and trade on recognized stock exchanges. MES is country heavy in Kuwait (52%), the United Arab Emirates (26%), Qatar (15%), and Oman (4%).

The Gulf States Index ETF is the most recent of a slew of Middle East, Africa, and frontier market ETFs to become available. PowerShares recently launched a similar, but more diverse MENA Frontier Countries Portfolio ETF (PMNA) which also has top country exposure in Kuwait, and exposure in Qatar, the United Arab Emirates, and Oman. Other similar ETFs include State Street’s Emerging Middle East and Africa Fund (GAF), Market Vectors Africa Index Fund (AFK), and Claymore’s Frontier Markets ETF (FRN).

The top 10 holdings in the Gulf States Index ETF are:

Mobile Telecommunications Co. – 12.14%
Kuwait Finance House – 10.45%
National Bank of Kuwait – 7.92%
Emaar Properties – 7.21%
National Industries Group – 5.43%
Qatar National Bank – 3.28%
Public Warehousing Co. – 2.87%
Global Investment House – 2.83%
First Gulf Bank – 2.65%
Commercial Bank of Kuwait – 2.63%

The fund has a heavy weighting in banks (38%), followed financial services (22%), and real estate (11%). The expense ratio for the fund is 0.98%, and trades on the NYSE Arca exchange.

The First Middle East Frontier ETF

The eagerly awaited PowerShares MENA Frontier Countries ETF (PMNA) launched on July 9th, the second frontier ETF to hit the market. Claymore’s Frontier Markets ETF (FRN) started trading in June. Although both funds lay claim to the “frontier” market, the two couldn’t be any more different in their holdings. PowerShares’ fund is based on the NASDAQ OMX Middle East North Africa Index, whereas Claymore’s fund tracks the Bank of New York Mellon New Frontier DR Index. PMNA is country heavy in Egypt and Kuwait, and FRN is heavy in Poland and Chile.

PowerShares describes the index that PMNA is tracking in more detail on their website: “The Index seeks to provide direct exposure to liquid stocks of companies that have the majority of their assets or services residing in MENA frontier market countries, which include Kuwait, Bahrain, Qatar, the United Arab Emirates, Oman, Lebanon, Egypt, Jordan and Morocco.” The largest holding in the fund is Arab Bank PLC, which accounts for roughly 10% of the funds assets. In terms of sector allocation, the fund is 55% financials, 19% telecom, 13% industrials, 10% materials, and the remainder in energy and utilities. The current top ten holdings in the fund are as follows:

Arab Bank PLC – 10.08%
Emaar Properties – 7.71%
Nat’l Ind. Grp S.A.K. – 5.91%
Mobile Tele. Co. K.S.C. – 5.44%
Orascom Constr. Ind S.A.E. - 5.10%
Orascom Telecom Holding – 4.94%
Ban. Marocaine du Comm. – 4.69%
Maroc Telecom – 3.91%
Kuwait Fin. House K.S.C. – 3.65%
Solidere GDR Reg S – 3.49%

On a fundamental basis, the trailing P/E ratio for the fund is 14, and price to book is around 2.7 for the 50 issues that make up the fund. The expense ratio for the fund is 0.95%, and trades on the NASDAQ market.

Can You Handle the new Frontier Market?

There's new blood in the ETF universe, and its not commoditites or leveraged funds, its the blood of the new frontier of investing, known as the frontier markets. On Thursday June 12th Claymore launched its Frontier Markets ETF (Ticker: FRN) which will attempt to track the Bank of New York Mellon New Frontier DR Index (Ticker: BKNFR). Here is a brief snippet from Claymore on what the index is comprised of:

The Frontier Index tracks the performance of depositary receipts in American depositary receipts ("ADR") or global depositary receipts ("GDR") form that trade on the London Stock Exchange ("LSE"), New York Stock Exchange ("NYSE"), American Stock Exchange ("AMEX") and Nasdaq Stock Market ("NASDAQ") of companies from countries that are part of the Frontier Market, as defined by the Index Provider.

The Index Provider currently defines the Frontier Market countries as: Bahrain, Jordan, Kuwait, Lebanon, Oman, Qatar, United Arab Emirates, Egypt, Ghana, Kenya, Malawi, Mauritius, Morocco, Nigeria, Tunisia, Zimbabwe, Bulgaria, Croatia, Czech Republic, Estonia, Georgia, Kazakhstan, Latvia, Lithuania, Poland, Romania, Slovak Republic, Slovenia, Ukraine, Bangladesh, Pakistan, Papua New Guinea, Sri Lanka, Vietnam, Peru, Chile, Colombia, Ecuador, Jamaica, Panama and Trinidad & Tobago.

As of May 23, 2008, the Index's constituent countries were represented (in approximate market capitalization) in the Index as follows: Poland 25.0%, Chile 21.0%, Egypt 17.1%, Kazakhstan 7.8%, Peru 5.3%, Czech Republic 5.2%, Nigeria 3.4%, Lebanon 3.2%, Pakistan 3.0%, Oman 2.4%, Columbia 2.3%, Croatia 1.8%, Bahrain 1.4%, Georgia 0.7% and United Arab Emirates 0.5%.

Currently FRN's total market cap is just shy of $4,000,000 and has an expense cap of 0.65%.
The top 10 Holdings are names you probably have never heard of, and are as follows:

BANK PEKAO SA 7.94 %
TELEKOMUNIKACJA POLSKA 6.52 %
ORASCOM TELECOM HOLDING S 6.11 %
KAZMUNAIGAS 5.23 %
MINAS BUENAVENTURA ADR REP 2 SER'B'PEN1 5.20 %
ORASCOM CONSTRUCTION INDU 5.03 %
POLSKI KONCERN NAFTOWY OR 5.03 %
KGHM POLSKA MIEDZ SA 5.03 %
EMPRESA NAC ELEC-CHIL ADR 4.88 %
ENERSIS-ADR 4.21 %

Just recently PowerShares announced that it will be launching its own frontier market ETF with the planned ticker of PMNA. The fund will be based on the NASDAQ OMX Middle East North Africa Index, which is comprised of the largest and most liquid securities in Egypt, Morocco, Oman, Lebanon, Jordan, Kuwait, Bahrain, Qatar and the UAE.

PowerShares to Launch Frontier Market ETF

Invesco PowerShares today announced its plans to launch a new frontier markets ETF, which will focus on the Middle East and Africa. The anticipated ticker symbol for the new fund is PMNA, and the fund will be called the PowerShares MENA Frontier Countries Portfolio. The fund will be based on the NASDAQ OMX Middle East North Africa Index, which is comprised of the largest and most liquid securities in Egypt, Morocco, Oman, Lebanon, Jordan, Kuwait, Bahrain, Qatar and the UAE.

This will be an exciting new ETF option, as many investors are looking for a way to cash in on the newly popular frontier markets. The most popular option to date is the T.Rowe Price Africa and Middle East mutual fund (TRAMX) which has been given an endorsement by Fast Money's Tim Seymour, and is up 9.1% for the year as of May 31st.