Passive investing has accelerated throughout MENA, and adoption has become more widespread. Assets within ETFs and passive mutual funds listed in the region surpassed USD 500 million for the first time in May 2022. As regulation and markets evolve and asset managers embrace passive strategies, learn more about the indices that are fueling this growth.
- What can you tell us about the growth of passive investing in the Middle East?
Although passive investing in the region is still in its early stages, the growth rate has been steadily building in recent years. Saudi Arabia was the first adopter of indexing, although the UAE has recently taken the lead. Meanwhile Kuwait, the second largest investment base, has yet to report passive funds. According to research from Chimera, there are currently 12 ETFs listed on the MENA markets—6 in the UAE, 3 in Saudi Arabia, 2 in Qatar, and 1 in Egypt. Six of these have been listed in the past two years.
However, it is also important to note that many in the region invest via index products that are domiciled in Europe or other global markets, so it is difficult to gauge the full scope and growth of indexing driven by regional investors.
- What are the key drivers for the acceleration of passive investing in the MENA region?
Similar to what we’ve seen in many other parts of the world, the MENA investment community recognizes the benefits of index-based investing, notably the lower costs and greater transparency relative to actively managed funds. In addition, the inability of most active funds to outperform broad benchmarks has also been a key contributor to the adoption of passive investing.
In our first edition of performance finding for the MENA region, the SPIVA MENA Year-End 2021 Scorecard, we published the performance of actively managed MENA equity funds denominated in local currencies against the performance of their respective S&P Dow Jones Indices (S&P DJI) benchmark indices over 1-, 3-, 5- and 10-year investment horizons. Over a five-year period ending Dec. 31, 2021, 88% of active MENA equity funds underperformed the S&P Pan Arab Composite, while 95% of GCC funds similarly lagged the S&P GCC Composite, and 92% of Saudi funds underperformed the S&P Saudi Arabia over the same period.
