Single Country Middle East & Africa ETFs and Closed-End Funds

Single Country Middle East & Africa ETFs and Closed-End Funds List
(click on symbol for data and articles)

Israel ETFs
iShares MSCI Israel Capped Investable Market Index Fund ETF (EIS)

Israel CEFs
First Israel Fund (ISL)

South Africa ETFs
Shares MSCI South Africa Index Fund (EZA)

Turkey ETFs
iShares MSCI Turkey Investable Market Index Fund ETF (TUR)

Turkey Closed-End Funds
Turkish Investment Fund (TKF)

What Are They?

• Single country funds -- ETFs (exchange-traded funds), ETNs (exchange-traded notes) and CEFs (closed-end funds) -- provide investors with exposure to foreign stocks on a country by country basis, in contrast to broad and regional funds which cover multiple countries' stocks in a single ETF.
• Single country ETFs and CEFs usually provide exposure to foreign stocks that don't trade on US exchanges, though sometimes they are limited to stocks that trade in the US as ADRs (American Depository Receipts).
• ETFs and ETNs are typically index funds which trade close to or at their underlying asset value. In contrast, closed-end funds tend to be actively managed, and due to their structure can trade at significant premia or discounts to their net asset values.

Why & How To Use Them

• If you're a long term investor looking to build a diversified portfolio that includes foreign stocks, you'll need to decide whether to use a few broad foreign stock ETFs or a collection of single country ETFs and closed-end funds. Broader funds tend to be cheaper and easier to manage. Since ETFs are usually market cap weighted, a broad or regional foreign stock ETF will provide exposure to countries proportionate to the size of their stock markets. In contrast, single country funds allow you to overweight countries that you believe will perform better.
• If you decide on single country funds, you'll need to chose between using an ETF or a CEF for any given country. ETFs (exchange-traded funds) appeal to investors looking for maximum diversification, low cost and an indexing approach. CEFs (closed-end funds) offer opportunities to investors looking for a more active approach to management. We've grouped the ETFs and CEFs together by country below, so you can see the choice of ETFs and CEFs for each country.
• Closed-end funds may be attractive when they trade at discounts to net asset value, despite their higher expense ratios and more limited holdings. For more on this important issue, see Further Reading below.

What to Look Out For

• Compared to broad or regional foreign stock ETFs, single country ETFs tend to have higher expense ratios, have been criticised for wide tracking error (divergence from their underlying indexes), and may suffer from wider bid-ask spreads.
• Closed-end funds tend to have higher expense ratios than ETFs, and may be more expensive to purchase and sell as their lower trading volume may result in wider bid-ask spreads.
• Closed-end funds are a specialty. A CEF may look attractive if it trades at a discount to net asset value, but discounts may persist for long periods of time, and higher expenses and poor active management might lead to underperformance. See Further Reading below for more on investing in CEFs.

Further Reading

• Many Middle Eastern economies are dominated by oil. For exposure to the Middle East, it may therefore make sense to consider the oil ETFs. See Commodity ETFs and ETNs.
• The case for closed-end funds is discussed in ETF Investing Guide: Why Use Closed-End Funds?. Roger Nusbaum provides an alternative view in Why Closed-End Funds Don't Work for Most Investors. Daily commentary on closed-end funds is available in Seeking Alpha's closed-end funds section.
• For more information on the choice between broad foreign stock funds and single country funds, see Gary Gordon's International ETFs: Be Aware of Extreme Single Stock Exposure and Broad and Regional Emerging Market ETFs.
• WisdomTree offers dividend-weighted ETFs for Japan and various regions. For more on foreign dividend-weighted ETFs, see International Dividend ETFs.
• The problem of tracking error of foreign stock ETFs is discussed in Matt Hougan's Tracking Error In Exchange Traded Funds, Herb Morgan's ETF Tracking Error: 'Need' vs. 'Demand' Funds, and Larry MacDonald's Index Tracking Errors in ETFs.

This page is part of The Seeking Alpha ETF Selector which sorts ETFs by type, highlights how to use them and what to look out for, and provides links to articles that discuss key issues for investors.

Comments

[Lisa]

What about all the other countries? I'm just itching to buy ETFs for Iraq and Uganda.
:-)

[Ralph F]

Does anyone have any opinions on ISL? Is it well managed? Fees?

There really should be an Israel index ETF, because there are a lot of Israeli publicly traded companies on the NASDAQ and locally. Why hasn't someone issued this one?

[David Jackson, SA Founder]

Update: we just added the new Barclay's iShares Israel and Turkey ETFs to this list.