KSA: This Overlooked Saudi Arabia ETF is Outshining the U.S. Markets

KSA: This Overlooked Saudi Arabia ETF is Outshining the U.S. Markets

While ETFs can be used to diversify one’s holdings or to invest in a sector as a whole instead of a single stock, they can also be used to gain exposure to markets that most investors would otherwise have difficulty accessing. This ETF is a good example of that, as it gives U.S. investors (and non-Saudi investors in general) a convenient way to gain access to the Saudi market, which has historically been closed off to foreign investors. 

While oil is clearly still the key cog of the Saudi economy, there is a lot more to this market than just oil. In fact, energy isn’t even the largest sector held by the iShares MSCI Saudi Arabia ETF -- financials take the top spot with a weighting of over 40% (as of the end of Q1 2023).

Banks like Al Rajhi Bank and Saudi National Bank are the fund’s top two holdings, with weightings of 13% and 9.6%, respectively. In fact, banks make up six of the ETF’s top 10 holdings. These banks benefit from a zero-interest deposit base as Islamic law dissuades individuals from collecting interest on loans, so they benefit from rising interest rates worldwide as they can allocate assets into interest-bearing assets but do not have to pay higher rates to their depositors.