SPDR Emerging Middle East & Africa Fund: Limited Geographical Diversity

| About: SPDR S&P (GAF)

Let's say that you believe that the Oil Producing Exporting Countries [OPEC] have more power today than at any time in its history. And let's say you felt that several of OPEC's large Middle Eastern members were successfully plowing their oil revenue back into productive parts of their respective economies.

Perhaps you would be inclined to look towards placing a small portion of your capital in the SPDR S&P Emerging Middle East & Africa Fund (NYSEARCA:GAF). And indeed, you might be getting a darn good investment.

Ironically enough, however, the investment you chose would have precious little to do with the African continent. What's more, your exposure to the Middle East would primarily mean an allocation to Israel. In fact, the SPDR S&P Emerging Middle East & Africa Fund should be renamed the "SPDR S&P Israel/South Africa Fund."

Now, I have no problem with an ETF called the "SPDR S&P Israel/South Africa Fund." In a previous post, I showed how Vanguard Pacific (NYSEARCA:VPL) isn't the best designation for a fund that is weighted 70% Japan and 20% Australia... even when the investment itself may be sound. So I would be fine with a "SPDR S&P Israel/South Africa Fund."

Nonetheless, State Street decided to give us the SPDR S&P Emerging Middle East & Africa Fund. It seeks to replicate the total return performance of the S&P/Citigroup BMI Middle East & Africa Index (whatever that is). In actuality, Africa means 65% South Africa and Middle East actually means 20% Israel.

GAFs got a fair amount going for it. The companies in the index have a combined forward P/E of roughly 15. This seems reasonable when the 5-year projected earnings growth is comfortably in the double-digit growth arena of 12.5%. And with a 20% weighting in the materials sector... you would be participating in an investment that caters to the global thirst for resources.

What you're not getting, of course, is a genuine reflection of burgeoning Middle Eastern economies. If you're okay with that... and if you're okay with an investment that may be prone to extreme price swings... then the this fund may be for you.

GAF 1-yr chart: