Saudi Arabia’s Public Investment Fund (PIF) is intensifying its efforts to position itself as a key player in the global exchange-traded fund (ETF) market as part of its broader strategy to diversify the economy and bolster its Vision 2030 development plan. This growing focus on ETFs, especially in the bond market, is being marked by a $200 million seed investment in State Street Global Advisors’ (SSGA) newly launched Europe-listed SPDR JPMorgan Saudi Arabia Aggregate Bond UCITS ETF.
The ETF, which launched in December 2024, is notable for offering exposure to US dollar-denominated Saudi sovereign and quasi-sovereign bonds, with an average maturity of approximately 10 years. It is believed to be the first Saudi bond ETF to be listed in Europe or the US, underscoring Saudi Arabia’s growing interest in capitalizing on global ETF trends to further develop its financial markets.
The PIF’s strategic move into the ETF market is seen as part of its long-term vision to make the Saudi capital markets more attractive to international investors, particularly those in Europe, Asia, and beyond. As the Saudi economy works to diversify away from its reliance on oil, the capital markets are becoming an essential focus for future growth. The PIF’s decision to seed this bond fund highlights its commitment to providing investors with accessible, long-term investment opportunities in Saudi Arabia’s rapidly evolving financial landscape.
In addition to the $200 million injection into the Saudi bond ETF, the PIF has also shown significant support for other ETF initiatives targeting Saudi equities. The PIF was a cornerstone investor in Mizuho Financial Group’s One ETF FTSE Saudi Arabia Index fund, contributing $100 million to its December 2024 listing on the Tokyo Stock Exchange. This was not the only initiative: the PIF was also the seed investor for the CSOP Saudi Arabia ETF, which debuted in Hong Kong in November 2023.
At the core of Saudi Arabia’s push into ETFs is Vision 2030, a national initiative aimed at reducing the country’s dependence on oil revenues by diversifying the economy. The PIF’s investments in ETFs align with this vision, offering a platform for global investors to tap into the economic transformation underway in the kingdom. The hope is that international investors will be encouraged to invest in Saudi Arabia’s infrastructure projects and public-private partnership ventures, driving further economic development.
The PIF’s strategy also emphasizes its ambition to attract institutional, intermediary, and retail investors with a medium- to long-term outlook. Emmanuel Laurina, head of Middle East, Africa, and official institutions at SSGA, explained that the Saudi bond fund was designed to cater to investors seeking exposure to sovereign or quasi-sovereign bonds, offering an alternative to direct bond purchases.
The SPDR JPMorgan Saudi Arabia Aggregate Bond UCITS ETF boasts a competitive total expense ratio (TER) of 0.37%, making it cheaper than many of its competitors in the equity ETF space, such as the iShares MSCI Saudi Arabia ETF (0.39%) and Franklin FTSE Saudi Arabia Fund (0.75%). This lower TER positions the fund as a more cost-effective way for global investors to gain access to Saudi bonds, which could help boost its appeal in a crowded global ETF market.
Moreover, the fund provides greater diversification across issuers and yield curves, offering investors broader exposure to the evolving Saudi market. This is a strategic benefit, as it helps mitigate the risks associated with investing in a single bond or sector, while still providing the potential for long-term returns as Saudi Arabia continues to mature its bond market in line with its Vision 2030 objectives.
While Saudi Arabia’s drive to position itself as a major player in the global ETF market is ambitious, the kingdom faces challenges along the way. Kenneth Lamont, principal at Morningstar, noted that for the ETF to succeed, the investment case for Saudi debt must be compelling enough to attract sustained interest. However, he also acknowledged that the PIF’s backing of the ETF could boost credibility and help it meet fund selectors’ minimum size criteria, thus attracting more attention from investors.
Despite these challenges, the PIF’s continued support for ETFs and its strategic investments in various funds highlight its commitment to opening up Saudi Arabia’s capital markets. By increasing the global accessibility of its financial products, Saudi Arabia hopes to accelerate its economic diversification efforts, attract international capital, and solidify its position as a key player in the global financial system.
As Saudi Arabia intensifies its ETF strategy, the impact of these investments on the country’s economic diversification efforts will likely unfold over the coming years. By expanding its ETF offerings and encouraging greater international investment, Saudi Arabia aims to boost investor confidence, deepen its financial markets, and provide global investors with access to its burgeoning economic opportunities. If successful, this could significantly accelerate the kingdom’s Vision 2030 goals and create a robust, diversified economy less dependent on oil revenue.
