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Funds News

Advisers warn of ETF's Gulf pursuit

Exchange traded fund providers are eyeing up the Persian Gulf as the next big investment story as markets open up to foreign investors, but some advisers are warning against plunging into uncharted waters labelling it a ‘recipe for disaster'. REUTERS/file

LONDON (Citywire) - Exchange traded fund providers are eyeing up the Persian Gulf as the next big investment story as markets open up to foreign investors, but some advisers are warning against plunging into uncharted waters labelling it a ‘recipe for disaster’.

Lyxor Asset Management, Barclays’ ETF company iShares and Deutsche Bank’s ETF arm db x-trackers have all promoted ETFs for the region, saying surging oil prices have helped open other sectors to investment.

But some advisers are sceptical. Chartered financial planner Brian Benson, managing director of Shropshire-based Crown Wealth Management, said emerging markets had their place but cautioned against ‘chasing fads’. ‘It’s a volatile region - I’d say be cautious in your approach,’ he said.

Richard Gough, director and investment manager at Cardiff-based Castle Court Consulting, was scathing. ‘It’s a recipe for disaster,’ he said. ‘How many companies trading on a Gulf stock exchange can you name?’

‘If there are investments to be made in the Gulf, or other emerging economies, you should employ a fund manager to make those decisions. There’s a lot more to it than, “There’s oil there, they’ll make money.”’

Lyxor Asset Management recently found that 84 percent of over 100 investment IFAs polled recommended some exposure to frontier markets such as Kuwait, with one in six advocating exposure over 10 percent, while 22 percent expected clients to invest more in the Gulf in the next three years.

In July Lyxor teamed with Kuwaiti investment house Coast to launch the Lyxor ETF Kuwait, which tracks the FTSE Coast Kuwait 40 Index. While the index is up 600 percent since 2000, an analysis by the FTSE Group says economic indicators reveal plenty of growing room.

Daniel Draper, global head of Lyxor ETF, said: ‘While booming oil and gas prices have boosted Kuwait’s economy, this has financed development into other areas, such as banking, telecommunications and construction sectors.’

Meanwhile Deutsche Bank’s ETF arm, db x-trackers, is also sizing up the region with a product due in 2009. However, Suzanne Williams, senior product developer at Barclays’ ETF company iShares, said that investors would prefer ETFs targeting the region as a whole rather than individual countries such as Kuwait.

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