ETFs in Fastest-Growing Economy (Not China)

By Jared Cummans of ETF Database

On the western coast of the Persian Gulf, one tiny country has earned a slew of 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 population, the country's economic power is soaring, with the Qatari government supported through revenue from massive deposits of crude oil and natural gas and a subsequently massive energy industry; oil and gas make up roughly half of the country's GDP -- according to the CIA factbook, the second-highest per capita in the world, behind only Lichtenstein -- 85% of their exports and 70% of total government revenue. (That means citizens don't pay any income taxes.)

And 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 to 77 million tons from 40.

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," Robin Wigglesworth writes. "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. While there's no pure play ETF offering exposure to Qatar, there are a few 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 10 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%). As the names suggest, not all of these are oil or natural gas firms. In fact, the fund 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 fund assets; most of that exposure comes from the four stocks mentioned above.

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 based in countries belonging to the Gulf Cooperation Council or that generate the majority of their revenues in these countries. The Qatar National Bank (7.2%) and Qatar Telecom (3.5%) make an appearance in the top 10 holdings of this fund, and in total Qatar accounts for about 22% of assets. Like GULF, this fund is light on exposure to the energy sector; financials dominate fund assets, accounting for a whopping 65% of holdings. The biggest country allocations are to Kuwait (40%) and the UAE (26%); this fund charges an expense ratio of 0.99%.

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