- Institutional adoption accelerates
- Investors embrace flexible allocations
- Saudi vehicle targets foreign capital
Gulf sovereign wealth funds are stepping up their use of exchange-traded funds (ETFs), as they seek flexible exposure to global markets and try to attract foreign investment into domestic stocks.
ETFs hold baskets of investments. They often track a particular market or sector and can be bought and sold on a public stock exchange.
Just five years ago they attracted little interest from Gulf institutions, according to Emmanuel Laurina, senior managing director and head of Middle East, Africa and official institutions at Boston-based State Street Investment Management.
That is now changing. “The adoption of ETFs by the Middle East region is growing exponentially,” Laurina said. “In every client meeting we have these days, whether it’s a wealth platform, an OCIO [outsourced chief investment officer], a sovereign wealth fund, a pension fund, or even a central bank, ETFs are on the agenda.”
ETFs provide diversified, tradable investments while generally charging lower fees than actively managed funds. They have grown in popularity in recent years, particularly among retail investors. Global ETF assets have expanded by an average of 19 percent annually since 2008, says Morningstar, a Chicago-based financial services company.
That growth has encouraged more asset managers to launch ETFs as they seek a share of the expanding market.
In April, Saudi Arabia’s $1 trillion sovereign wealth fund, the Public Investment Fund, became the anchor investor in the State Street Saudi Arabia Enhanced Active Equity UCITS ETF (SAQL).
This ETF, which offers exposure to equities traded on the Saudi stock exchange, was created to attract more international capital into the kingdom and “support financial markets in Saudi Arabia as part of Vision 2030,” Laurina said.
“That’s them kind of wearing their policy hats as opposed to wearing their pure investor hats,” Laurina added.
As investors, sovereign wealth funds are also allocating more money to ETFs. A study by investment company Invesco suggests 55 percent of polled sovereign funds upped their ETF allocation in the last three years, and 60 percent plan to increase it over the next three years.
“It is interesting to see how it’s becoming a tool that they utilise on a regular basis,” said Josette Rizk, head of Middle East and Africa at Invesco.
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For sovereign wealth funds, she said, ETFs have become a simple way to increase exposure to specific sectors or regions, without changing long-term investment strategies.
“It’s very difficult to move strategic asset allocations all the time,” Rizk said. “How easy and efficient the ETF market has become is something that has been extremely helpful.”
The global rise of ETFs has created a deeper, more liquid market, making it easier for institutional investors to buy and sell large positions quickly.
In May, assets invested in ETFs worldwide surpassed $23 trillion, while net inflows for the first five months of 2026 reached a record $1 trillion, said ETFGI, a London-based ETF research company.
“We’ve always looked at ETFs as a tool that’s utilised by the retail investor,” Rizk said. “I think in a shifting environment it’s interesting to see how ETFs are becoming also an institutional tool.”
