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Capitalizing on the Rise of Oil Prices = Investing in the Middle East ETF of PMNA? Not So Fast!
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Topic: ETF, MENA Region
The PowerShares MENA Frontier Countries ETF (PMNA), which tracks an index with exposure to Egypt, Morocco, Oman, Lebanon, Jordan, Kuwait, Bahrain, Qatar and United Arab Emirates, has significantly lagged the performance of oil in the past year. Despite the 98% appreciation of oil price per barrel since March 2009, PMNA only returned 46%. Although the quick assumption is investing in the Middle East ETF equates investing in oil, the fact bears to differ. Although it is true that the countries PMNA invests in has 60% of the world's oil reserves (810.98 billion barrels) and 45% of the world's natural gas reserves (2868.886 Trillion cubic feet), the actual stocks in PMNA have little to do with oil. The top 30 holdings in PMNA which account for approximately 70% of the ETF weight are largely telecom, real estate corporations, and banks. The Dubai World’s debt crisis exposed in late November certainly didn’t help the ETF’s performance.
Although we are not fans of passive investment styles which use a broad bucket of stocks such as the PMNA ETF, International market ETFs like the PMNA are an easy way for US investors to diversify their portfolios in international securities. That said, it is crucial to understand the stock exposure you have in each ETF rather than using the name as a generalization for what you believe you are buying.
As investing abroad becomes more relevant, we believe it's very important to understand the companies within these regions in more detail. For investors looking to take advantage of global markets, The Applied Finance Group (AFG) now values over 30,000 companies in 30 countries with modules related to a stock's Embedded Expectations, Economic Margins, Management Strategy, and Earnings Quality.
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Value Expectations, by the founders of The Applied Finance Group (AFG) provides institutional quality equity research using AFG’s proprietary Economic Margin framework
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