In March 2010, National Bank of Abu Dhabi ("NBAD") established the first ETF listed in the Persian Gulf. In this article, the writer gives greater insight on the ETF and its investment strategy, the challenges in establishing the ETF and focuses on questions as to why the ETF is structured as a UCITS and why domiciled in Ireland.
NBAD OneShare Dow Jones UAE 25 ETF
The ETF, titled NBAD OneShare Dow Jones UAE 25 ETF, is a sub-fund of an Irish domiciled open ended umbrella collective investment scheme authorised as a UCITS by the Irish Financial Services Regulatory Authority (the "Irish Financial Regulator").
The United Arab Emirates Dirham Class of the ETF is listed on the Abu Dhabi Securities Exchange (the "ADX") which constitutes the Arab world's second largest bourse by market capitalisation. Consequently investors may buy shares of the ETF through brokers registered with the ADX.
The investment objective of the ETF is to provide long term capital appreciation through the replication of the performance of the Dow Jones UAE 25 Total Return Index (Local) (the "Index"). The ETF synthetically replicates the performance of the Index through a fully funded total return swap.
The Index comprises the 25 largest, most frequently traded and liquid equity securities on the stock exchanges of the UAE, excluding foreign-listed stocks. To be eligible for inclusion in the Index, securities must have a minimum average daily trading volume of US$500,000. Initially the ETF will gain exposure to heavy weights such as Emirates Telecommunications Corp, First Gulf Bank, Emaar Properties, NBAD and Dubai Islamic Bank. The Index reflects the broad view of the UAE in a single index although represented exchanges are the Dubai Financial Market, Abu Dhabi Securities Exchange and Nasdaq Dubai.
The Index is weighted by free-float market capitalisation. The weights of the individual components are capped to eight per cent of the Index. Components with weights of five per cent or more are restricted in aggregate to 40 per cent of the Index.
Before an application for authorisation of a UCITS may be considered by the Irish Financial Regulator, the latter must be satisfied that the promoter of the UCITS is acceptable to it. In this regard, NBAD had little difficulty in gaining approval given its status as the No. 1 bank in the UAE, its credit rating, its financial resources and demonstrable and relevant track record in the promotion of funds.
The UCITS Directive...