ETFs To Invest In The World’s Fastest Growing Economy (No, Not China)

by on July 22, 2010 | ETFs Mentioned:

On the western coast of the Persian Gulf, one tiny country has earned a slew of rather unique distinctions that would surprise most U.S. investors. Qatar–which on a map looks like a tiny thumb sticking into the Persian Gulf–is among the fastest growing economies in the world. Though tiny in terms of population, the country’s economic power is soaring. Qatar’s government is supported through revenues derived from massive deposits of crude oil and natural gas, allowing citizens to not pay any income taxes. According to the CIA factbook, Qatar has the second highest GDP per capita in the world, behind only Lichtenstein. That is largely a function of the massive energy industry; oil and gas, make up roughly half of the country’s GDP, 85% of their exports, and 70% of total government revenue.

By some estimates, Qatar’s economy is set to grow at close to 15% this year, blowing away near-zero expansion expected in much of the developed world and besting even the surging Chinese economy. Again, much of that growth is fueled by expansion in the natural resource industry; liquid natural gas output is set to increase from 40 million tons to 77 million tons. However, Qatar’s economic boom hasn’t always been a sure thing. “When the small, sparsely populated Arab peninsula discovered a gargantuan natural gas field off its northern shores in the late 1990s, Qatar was almost bankrupt due to depressed oil prices,” writes Robin Wigglesworth. “However, the Emir H H Sheikh Hamad bin Khalifa Al Thani made a calculated bet and borrowed heavily from banks and capital markets to build the world’s largest liquefied natural gas industry.”

Investing In Qatar With ETFs

An investment in such a concentrated economy obviously carries some risks. The significant wealth and lavish lifestyles of many citizens of Qatar has allowed non-energy sectors of the economy to develop rapidly, but oil and gas will be the major economic driver for the foreseeable future [see Looking For Consumers? Follow The Millionaires]. While there’s no pure play ETF offering exposure to Qatar, our new Country Lookup Tool indicates that there are a few ETFs that maintain exposure to the Middle East natural gas powerhouse:

WisdomTree Middle East Dividend ETF (GULF)

This ETF tracks the WisdomTree Middle East Dividend Index, a fundamentally weighted index that measures the performance of companies in the Middle East region that pay regular cash dividends. To be included in this index, a company must have its listing on a major stock exchange in Bahrain, Egypt, Jordan, Kuwait, Morocco, Oman, Qatar or the United Arab Emirates. Four of the fund’s top ten holdings are based in Qatar, including Industries of Qatar (8.7%), Qatar National Bank (5.5%), Qatar Telecom (4.9%), and the Commercial Bank of Qatar (3.3%) [see all of GULF's holdings here]. As the names suggest, not all of these are oil or natural gas firms. In fact, GULF makes only a minor allocation to the energy sector; telecom (46%), financials (32%), and industrial materials (14%) make up the biggest sector weightings. Qatar accounts for about 24% of GULF’s assets; most of that exposure comes from the four stocks mentioned above [for a more in depth look, see Middle East ETFs Head-To-Head: GULF vs. MES].

Market Vectors Gulf States Index ETF (MES)

Van Eck’s MES follows the Dow Jones GCC Titans 40 Index, a benchmark that measures the performance of publicly traded companies that are headquartered in countries belonging to the Gulf Cooperation Council (GCC) or that generate the majority of their revenues in these countries. Qatar National Bank (7.2%) and Qatar Telecom (3.5%) make an appearance in the top ten holdings of MES, and in total Qatar accounts for about 22% of assets. Like GULF, this ETF is light on exposure to the energy sector; financials dominate fund assets, accounting for a whopping 65% of holdings. The biggest country allocations of MES are to Kuwait (40%) and the UAE (26%); this fund charges an expense ratio of 0.99% [see Inside The Five Most Expensive ETFs].

Disclosure: No positions at time of writing.