In March 2020, the Financial Times reported that Covid-19 had put an abrupt halt to the "rapidly expanding $6 trillion ETF industry". Fear and caution reigned amid concerns about a looming global economic meltdown.
However, despite the coronavirus pandemic, exchange-traded funds have proven to be a resilient investment, with investors ploughing $428 billion in new cash in ETFs so far this year, up 57 per cent compared with the same period last year.
This year, with the introduction of home-grown ETFs, it is time for investors in the Gulf to wake up to ETF opportunities.
Introduction to ETFs
An ETF is a low-cost, transparent and robust way to invest in a basket of assets, such as stocks, bonds or commodities, which are pooled together and traded on a stock exchange. An investor, therefore, does not need to invest in every single listed company or asset, but can achieve exposure to the whole basket of an index’s constituent assets at a low cost, while not having to worry about hidden costs and fees.
Fees charged on an ETF are represented by a total expense ratio that is used to cover the multiple costs, including but not limited to auditors, custodians, depositary, regulatory and the fund manager. Hence, the ETF fees include the services offered by different service providers to maintain the investment with no hidden costs.
An ETF – essentially a legal wrapper for different strategies – can track the S&P 500 or FTSE 100 index, or a particular industry such as technology, banking or oil and gas. Commodity ETFs, such as gold or soybeans, and currencies ETFs, such as the euro or sterling, also exist. As a legal wrapper, it guarantees transparency, ease of trading and a highly regulated and monitored fund.
With such a broad offering, ETFs have become an increasingly popular way to diversify investment portfolios across multiple sectors, assets and countries to help spread risk.
Growth of ETFs
Global assets held by ETFs have reached $7 trillion for the first time, boosted by massive emergency public spending measures that helped drive a rebound in financial markets.
Commodity exchange-traded products (ETPs) saw net new inflows of $64.2bn in the first seven months of 2020, according to data from consultancy ETFGI, with floods of money going into gold ETPs.
Bond ETFs had a solid year with net inflows of $141bn as of the end of July, up $9bn from last year, and equity ETFs generated $113bn of net new money in the first seven months of the year, only marginally down from the same period in 2019.
Investors all over the world piled into ETFs either as security against headwinds or as part of diverse portfolio strategies. Investors in the Gulf, too, need to consider ETFs in this light.
ETFs in the Gulf
The region’s ETF environment is at a nascent stage. While ETFs tracking Gulf indexes and economies exist, only a handful of ETFs are listed in the region itself. ETF providers have a limited Gulf presence. Assets under management in Islamic ETFs are marginal, representing an estimated 0.01 per cent of the global ETF market. Knowledge about ETFs is low or concentrated to those with a financial services background.
An ETF's price is live on the stock exchange throughout the trading day, allowing investors to track their investment in real-time
This year, however, the region’s ETF landscape changed. In July, Chimera Capital launched the first ETF tracking a Sharia-compliant index in the UAE with the Chimera S&P UAE Shariah ETF. The ETF offers two share classes – an accumulation class and an income class offering investors the opportunity to capitalise on the UAE’s economic prospects. With Chimera’s two ETF offerings, the number of Mena-based ETFs has increased to seven.
This expansion has helped awaken an appetite for home-grown ETFs tracking Gulf indexes and assets.
Passive index tracking ETFs are worthwhile investment tools to anchor a portion of an investor’s portfolio while freeing up time to focus on alpha-generating ideas. It’s also a low-cost and hassle-free investment with an added benefit of dividend distributions in some classes.
And due to its robust and transparent nature, an ETF is also a fast and efficient investment tool specifically for retail investors, as it provides a balanced investment strategy that replicates a specific index with the ease of buying a single share.
ETFs are set to play a bigger role in the Gulf, providing investors with relatively simple and liquid access to the region –and investors from the region should take note.
Seif Fikry is the chief executive and Sherif Salem is the chief investment officer of Chimera Capital, an Abu Dhabi-based asset management company.
UAE tour of Zimbabwe
All matches in Bulawayo
Friday, Sept 26 – UAE won by 36 runs
Sunday, Sept 28 – Second ODI
Tuesday, Sept 30 – Third ODI
Thursday, Oct 2 – Fourth ODI
Sunday, Oct 5 – First T20I
Monday, Oct 6 – Second T20I
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Who's who in Yemen conflict
Houthis: Iran-backed rebels who occupy Sanaa and run unrecognised government
Yemeni government: Exiled government in Aden led by eight-member Presidential Leadership Council
Southern Transitional Council: Faction in Yemeni government that seeks autonomy for the south
Habrish 'rebels': Tribal-backed forces feuding with STC over control of oil in government territory
Reading List
Practitioners of mindful eating recommend the following books to get you started:
Savor: Mindful Eating, Mindful Life by Thich Nhat Hanh and Dr Lilian Cheung
How to Eat by Thich Nhat Hanh
The Mindful Diet by Dr Ruth Wolever
Mindful Eating by Dr Jan Bays
How to Raise a Mindful Eaterby Maryann Jacobsen
UAE currency: the story behind the money in your pockets
The more serious side of specialty coffee
While the taste of beans and freshness of roast is paramount to the specialty coffee scene, so is sustainability and workers’ rights.
The bulk of genuine specialty coffee companies aim to improve on these elements in every stage of production via direct relationships with farmers. For instance, Mokha 1450 on Al Wasl Road strives to work predominantly with women-owned and -operated coffee organisations, including female farmers in the Sabree mountains of Yemen.
Because, as the boutique’s owner, Garfield Kerr, points out: “women represent over 90 per cent of the coffee value chain, but are woefully underrepresented in less than 10 per cent of ownership and management throughout the global coffee industry.”
One of the UAE’s largest suppliers of green (meaning not-yet-roasted) beans, Raw Coffee, is a founding member of the Partnership of Gender Equity, which aims to empower female coffee farmers and harvesters.
Also, globally, many companies have found the perfect way to recycle old coffee grounds: they create the perfect fertile soil in which to grow mushrooms.
Killing of Qassem Suleimani
Why are asylum seekers being housed in hotels?
The number of asylum applications in the UK has reached a new record high, driven by those illegally entering the country in small boats crossing the English Channel.
A total of 111,084 people applied for asylum in the UK in the year to June 2025, the highest number for any 12-month period since current records began in 2001.
Asylum seekers and their families can be housed in temporary accommodation while their claim is assessed.
The Home Office provides the accommodation, meaning asylum seekers cannot choose where they live.
When there is not enough housing, the Home Office can move people to hotels or large sites like former military bases.
Scoreline
Arsenal 3
Aubameyang (28'), Welbeck (38', 81')
Red cards: El Neny (90' 3)
Southampton 2
Long (17'), Austin (73')
Red cards: Stephens (90' 2)
WHAT IS A BLACK HOLE?
1. Black holes are objects whose gravity is so strong not even light can escape their pull
2. They can be created when massive stars collapse under their own weight
3. Large black holes can also be formed when smaller ones collide and merge
4. The biggest black holes lurk at the centre of many galaxies, including our own
5. Astronomers believe that when the universe was very young, black holes affected how galaxies formed
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FIXTURES
All games 6pm UAE on Sunday:
Arsenal v Watford
Burnley v Brighton
Chelsea v Wolves
Crystal Palace v Tottenham
Everton v Bournemouth
Leicester v Man United
Man City v Norwich
Newcastle v Liverpool
Southampton v Sheffield United
West Ham v Aston Villa
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UAE-based players
Goodlands Riders: Jamshaid Butt, Ali Abid, JD Mahesh, Vibhor Shahi, Faizan Asif, Nadeem Rahim
Rose Hill Warriors: Faraz Sheikh, Ashok Kumar, Thabreez Ali, Janaka Chathuranga, Muzammil Afridi, Ameer Hamza
