Franklin Templeton launches three new geographically focused ETFs, Franklin FTSE Saudi Arabia ETF FLSA, Franklin FTSE South Africa ETF FLZA and Franklin FTSE Latin America ETF FLLA. These ETFs are linked to market cap weighted foreign stock indexes and listed on the NYSE (see: Goldman Sachs Launches TIPS ETF).

Many investors are looking to go beyond broad-based emerging markets or developed markets portfolios to capture the differences in performance that individual countries or regions can experience at different times based on a variety of market events,” said Patrick O’Connor, head of global ETFs, in a statement. “We offer investors access to a large proportion of this universe in order to make these tactical allocations using passive ETFs.”

Inside FLSA

This ETF tracks the FTSE Saudi Arabia Capped Index representing the price performance of Saudi Arabian large and mid-cap stocks. Financials (39%) and Basic Materials (36%) are the double-digit weight holders sector wise. It comprises 47 holdings, amassed $2.4 million since inception on Oct 9, and has an expense ratio of 0.39% (see: High Flying Saudi Arabia ETF Plunges on Sanction Concerns).

Inside FLZA

It tacks the FTSE/JSE South Africa Capped Index reflecting the performance of South African large and mid-cap stocks. The fund comprises 82 holdings. Sectors having double-digit allocations comprise Financials (26%), Consumer, Cyclical (25%), and Consumer, Non Cyclical (10%). The fund has been able to amass $2.5 million since its inception on Oct 10 and has an expense ratio of 0.19%.

Inside FLLA

It tracks the FTSE Latin America Capped Index, which reflects on the performance of Latin American large and mid-cap stocks. Financials (16%) and Basic Materials (10%) hold double-digit weights sector wise. It comprises 152 holdings and amassed $2.5 million since inception on Oct 9. The fund has an expense ratio of 0.19%.

How Do They Fit Into a Portfolio?

Saudi Arabia enjoys a privileged position in the world economy both on the basis of geopolitical and economic terms. With a claim of nearly 260 billion barrels of oil still to extract, it has the clearest advantage. However, the markets faced a major sell off on Oct. 14 due to disappearance of journalist Jamal Khashoggi.

South Africa’s economy faces a serious economic constraint. The unemployment rates stood at a high rate of 27.2% in the second quarter and the number reached 40% when discouraged work seekers are included. The country is even going through a trust deficit owing to the state capture project of the Zuma administration. 

However, there exists buying opportunities for investors having a larger risk appetite for purchasing the country’s assets as the currency is believed to be undervalued. China had decided to invest $14.7 billion in Africa at the BRICS Summit Energy event and granting off loans to state owned enterprises Eskom and Transnet. The infrastructure projects in the country have received $2.2 billion from Chinese lenders since 2014.

Deeper-than-expected depression in Argentina and a slower rate of growth in Brazil will be an overhang on the Latin American economies this and next year. The region is forecast to grow at a rate of 1.2% in 2018 and 2.2% next year. These estimates fall below prior estimates in July by 0.4 percentage points.

Per Accenture Research, Artificial intelligence (AI) could be the savior for this region and has the potential for adding nearly 1% to the economic growth rates by 2035. In early 2018, Mexico became the first country of the region and among the first 10 list of the world to come up with an official AI strategy (see: Invest Like Warren Buffett with These Stocks & ETF).

Competition

FLSA faces competition from iShares MSCI Saudi Arabia ETF KSA, which has a higher expense ratio of 0.74%. iShares MSCI South Africa ETF EZA stands as a competitor for FLZA. EZA has AUM of $375.6 million (as of Oct 15) and a higher expense ratio of 0.62%. FLLA faces competition from heavyweights like iShares MSCI Brazil ETF EWZ, iShares Latin American 40 ETF ILF and iShares MSCI Mexico ETF EWW. EWZ, ILF and EWW have higher expense ratios of 0.62%, 0.48% and 0.49%, respectively.