Middle East Progress?

5 Ways to Invest Page 1 of 3

SmartMoney

ON THE STREET by Dan Burrows Published June 17, 2009

Middle East Progress? 5 Ways to Invest

AFTER DECADES OF STRIFE, struggle and instability, could the Middle East be the next high-risk/high-reward arena for global
investors? Consider President Obama's historic speech in Cairo in early June calling for a “new beginning between the United
States and Muslims”; or the ongoing drama in Iran, where massive voter turnout just might succeed in bringing a reform candidate
to power.

The times, are they a-changin'?

True, very much remains to be seen and done, but with new mutual funds and exchange-traded funds launching in just the last
couple years, there are more opportunities than ever for investors interested in the geopolitically challenging but potentially highly
lucrative region. Indeed, a mini bull market may already be forming. After plunging more than 50% in 2008, the Bloomberg
Africa/Middle East index is up 15% in 2009.

See five ways to invest in the Middle East 1

Of course, plenty of caveats remain, says Joe Clark, managing partner of Financial Enhancement Group of Anderson, Ind., which
has no position in that part of the globe. "One of the challenges is that when you look at the entire Middle East you are still only
talking about a small percentage [about 5%] of world population," Clark says. "And the biggest investing theme is oil. There are far
safer ways to play oil than going into the Middle East."

Still, the higher the risk, the higher the potential reward -- if you're aggressive enough and can wait long enough, says Mark
Ragusa, president and chief investment manager of Money Map Advisors in Houston. "Investing in the Middle East now is like
investing in the United States in the 1900s," Ragusa says. "It's just a long-term growth play."

SmartMoney spoke with market professionals to take the lay of the Middle East landscape. From mutual funds to ETFs to individual
stocks, here's a look at five ways to get a piece of the Middle East.

T. Rowe Price Africa & Middle East

When it comes to the Middle East, there are multitudes of added layers of risk -- geopolitical, currency
and compliance, to name a few -- that the average retail investor doesn't understand, says Alan
Lancz, president of Alan B. Lancz & Associates of Toldeo, Ohio. Under such circumstances, Lancz
advocates active management. That's where the T. Rowe Price Africa & Middle East (TRAMX 2)
fund comes in. Launched in late 2007, the fund lost 53% in 2008, hurt partly by slowing regional
economic growth, lower oil prices and reduced liquidity in the banking sector, according to portfolio
manager Joseph Rohm. Cut to today and the fund is up nearly 46% in the last three months. Top
holdings include companies in Qatar, the United Arab Emirates, Lebanon and Egypt. The net expense
ratio of 1.32% seems reasonable given the challenges the region poses; there's no load; and the
minimum investment is $2,500. However, as Morningstar analyst William Rocco cautions: "This fund's geographic focus means it's
too narrow to be used as a solo emerging-markets holding and should be used in combination with other such funds."

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Templeton Frontier Markets

For the ultimate in active management, look no farther than Templeton Frontier Markets, which
launched in October. (The fund doesn't have a ticker yet but can be purchased through its CUSIP
number, which is 88019R674, Templeton says.) Lancz applauds the investing acumen of manager Dr.
Mark Mobius, who also runs Templeton Emerging Markets Small Cap A (TEMMX 3), a fund that is
up more than 50% year to date and 83% in the last three months, according to Morningstar. And the
Templeton Frontier Markets fund allows for even greater drilling down into the Middle East, with
potential exposure to Bahrain, Egypt, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Tunisia
and United Arab Emirates, among others. But it all comes at a price. True, the minimum investment is
just $1,000 and Lancz says, "Mobius is a very good money manger." He had better be to recoup the
fund’s 5.75% sales charge.

WisdomTree Middle East Dividend

There's nothing like ETFs for liquidity, transparency and cheap fees. Those are some of the draws for
Mark Ragusa of Money Map Advisors, who has allocated 6% of his aggressive tactical allocation
portfolio to the WisdomTree Middle East Dividend fund (GULF 4). "This is not for your typical
aggressive allocation," Ragusa says. "This is really for someone with a very high appetite for risk." No
one knows whether we'll have peace in the Middle East, Ragusa says, only that the region's GDP is
growing at 5% and this ETF offers a play on financials and oil. Even better, it's a dividend weighted
index, meaning underlying companies can't easily fiddle with their numbers. "You can't really hide the
fact that you’re paying a dividend," Ragusa says. "Cash out is cash out." Just remember, says
Ragusa, this is a high-risk, long-term opportunity. Also beware that the ETF, which is just about a year
old, can trade at a steep premium to its net asset value.

Orascom Construction
For those with true intestinal fortitude, individual stock picking in the region is another way to go.
Rahul Sharma, portfolio manager at Schafer Cullen Capital Management in New York, doesn't much
like ETFs for the Middle East. "Sure, you're buying the good stocks, but you're getting the bad ones,
too," Sharma says. "I just can't imagine wanting to own so much of the Middle East." This
stockpicker's favorite company in the region is Egypt's Orascom Industries (ORSDF 5). The
company, which is predominantly in the construction and fertilizer businesses, cannily sold off its
cement division two years ago right at the peak, and then used the proceeds to pay a dividend and
invest in the fertilizer business. Very shrewd moves, Sharma says. Orascom stands to benefit from
population and infrastructure growth in the region, as governments -- the company's main customers -
- try to cope with demographic changes, as well as get away from dependence on oil for revenue.

Cellcom Israel
Just across the Sinai Peninsula lies Cellcom Israel (CEL 6), another top Sharma pick. True, the
telecom business is mature, but the company trades at just nine times earnings and throws off a
chunky 10% dividend yield. Sharma also likes Cellcom's defensive nature. "Telecom in general is a
fairly defensive sector no matter where you are and in Israel that's especially true," he says. The
market contains only three operators, Sharma points out, and thus far they've avoided the types of
price wars we've become so accustomed to here in the U.S. "Cellcom Israel compares favorably to
other telecoms globally that have similar kinds of market penetration and the yield is highly attractive,"
Sharma says. Analysts' average call on the ADR is Buy, according to Thomson Reuters and their
median price target of $32 implies upside of 23% in the next 12 months or so.

1http://www.smartmoney.com/Investing/Short-Term-Investing/5-Plays-for-a-Piece-of-the-Middle-East/?page=2
2http://www.smartmoney.com/quote/TRAMX/
3http://www.smartmoney.com/quote/TEMMX/
4http://www.smartmoney.com/quote/GULF/
5http://www.smartmoney.com/quote/ORSDF/
6http://www.smartmoney.com/quote/CEL/

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Middle East Progress? 5 Ways to Invest Page 3 of 3

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