Investors show little appetite for new ETF

A little more than a month after the launch of the first exchange-traded fund (ETF) in the UAE, investors are showing little enthusiasm. After peaking on April 15 when 150,000 shares traded, volumes have slipped for the OneShare Dow Jones UAE 25 ETF. There were 25,000 shares traded yesterday. An ETF tracks a basket of stocks or commodities but trades like an individual share. In this case, the OneShare ETF includes the top 25 publicly traded companies in the region.

One of the main attractions of ETFs in the region, in theory, is that they allow institutional traders and high-net-worth individuals to take larger positions without being constrained by the limits set by bourses on the number of shares investors can buy in a single day. But most bigger investors left regional markets after the Dubai World debt restructuring and are waiting until there is a complete resolution before diving back in.

An ETF can also allow smaller investors to gain exposure to a broader index without having to buy a variety of individual shares. But the overall economic uncertainty is also weighing on smaller investors. It does not help that while the fees for buying an ETF share are lower than those paid on hedge funds or an actively managed mutual fund, they can be higher than buying individual shares. Buying into an ETF through a brokerage house, an investor will still have to pay Dh75 or a fee of 27.5 basis points, whichever is greater, on top of the annual fee of 99 basis points for the ETF, according to Saad al Chalabi, the institutional trader at Al Ramz Securities.

Finally, the OneShare ETF may effectively track UAE markets but that does not yet necessarily equate to much diversification. More than half of the fund is weighted in financial and property stocks. ETFs are popular investment tools worldwide and a long-overdue addition to regional bourses, but it is not hard to see why investors are staying away for the time being. [e-mail]