Global X’s Newly-launched Pakistan ETF: It’s great!

575

Newly-launched Pakistan ETF, is great!

Global X launched a Pakistan ETF about 2 weeks ago.  We finally had a chance to do a deep dive, and this is one of the ETFs which we can unabashedly recommend.

Key Facts: (all data as of 15 May 2015)

  • Ticker: PAK
  • CUSIP: 37950E689
  • Exchange: NYSE Arca
  • Issuer: Global X
  • Trading Since: April 2015
  • Benchmark: MSCI Pakistan*
  • Expenses: Management Fee – 0.68%, Custody Fee – 0.20%
  • Distribution Frequency: Annual

*Global X claims the benchmark to be the MSCI Pakistan All-Select 20/50 Index.  We do not believe it is logical or practical to use such an esoteric benchmark for any purpose other than constructing the portfolio.

Sector Breakdown:

We have written extensively about the Pakistan market (How to invest). It is diversified for a Frontier Market, but that diversity does happen more in the mid-cap spectrum.  The top 20 companies are fairly limited in terms of breadth.

The table below shows the difference between the ETF and the MSCI Pakistan Index.

PAK ETF vs. MSCI PAKISTAN

Currently, the Pakistan ETF has 33 holdings compared to 15 for MSCI Pakistan.  The average market cap is $1.2bn compared to $2.2bn for MSCI Pakistan.

Top Holdings:

The table below outlines the top holdings in the Pakistan ETF and some of their characteristics.

Company Weight 12-MT Return 3-YR Rturn Earnings Yield Dividend Yield
HABIB BANK LTD 13.4% 15.1% 11.0% 12.3% 0.0%
MCB BANK LTD 10.0% -2.3% 8.8% 9.1% 5.6%
OIL & GAS DEVELOPMENT CO 9.1% -22.3% 2.9% 12.6% 4.9%
UNITED BANK LIMITED 5.4% 5.6% 11.4% 12.6% 7.2%
FAUJI FERTILIZER CO LTD 5.4% 42.9% 6.3% 19.7% 10.4%
LUCKY CEMENT 4.8% 31.1% 16.4% 9.2% 0.0%
HUB POWER COMPANY LTD 4.4% 85.5% 14.6% 9.3% 0.0%
ENGRO CHEMICALS 4.1% 48.9% 12.1% 5.8% 0.0%
PAKISTAN STATE OIL CO LTD 4.1% -4.6% 9.9% 5.7% 0.0%
BANK AL HABIB LTD 3.6% 10.9% 8.4% 13.3% 0.0%

 

Thoughts

It is difficult to get access to Pakistani equity markets, unless you are willing to set up accounts directly.  This ETF allows you to legitimately invest in Pakistan’s top companies at a very reasonable cost.  As with all ETFs the total fee arrangement must be closely monitored as this fund gathers assets.  We feel fairly confident about this recommendation as a proxy for investing directly in Pakistan.

The total market cap of all the companies in the ETF is approximately $40bn, with a free float of approximately $20bn.  This provides enough liquidity for this fund to do well.  The fund currently only has about $4mm outstanding which does create the risk of Global X closing this ETF down.  However, we believe this is unlikely and this fund should continue to gather assets.

The timing of this fund is no accident; it was immediately after China announced its spending plans in Pakistan.  However, 2 weeks later, the ETF has not garnered significant attention, so we do believe there is a serious risk of this ETF overheating; it should trade fairly closely to NAV.

Further Reading

Global X PAK ETF Page – http://www.globalxfunds.com/PAK

 

 

 

Leave a Reply