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Why Saudi Scandal Hasn't Yet Transformed Investor Preferences

By Miriam Rozen October 30, 2018

Despite the unanswered questions and controversy about Saudi Arabian nationals’ alleged involvement in the murder of Washington Post columnist Jamal Khashoggi, financial advisors report their clients have so far failed to react dramatically to news developments.

Last week, as Turkish investigators searched the Saudi Arabian consulate in Ankara for clues, Saudi Prince Mohammed bin Salman, speaking at an investor forum in the Saudi capital, Riyadh, called Khashoggi's murder a “heinous crime.” He acknowledged the international outcry after weeks of his country’s leadership offering dubious explanations for the death.

But advisors say clients have not asked to make changes in their investment strategies because of the allegations against the Saudis, or even reports that U.S. executives stayed away in droves from an international conference the country’s leadership scheduled in Riyadh this month, the advisors report.

“Perhaps a bit surprising, but we haven’t had any requests or inquiries yet,” Liz Michaels says about clients seeking to exclude companies involved with the Saudis from their portfolios. Michaels is chief of staff and director of ESG and socially responsible investing for Aperio Group in Sausalito, Calif., which has $23 billion in assets under management.

“We have not seen any interest to take action with Saudi Arabia or emerging markets exposure more broadly as a result of Jamal Khashoggi’s death or the presume of Saudi leadership,” reports Bradford Long, a principal and research director at DiMeo Schneider & Associates in Chicago, which manages more than $12 billion in assets.

The Saudi Arabia-centric ETF sponsored by Blackrock, however, became a bit less popular as the news developments around Khashoggi’s murder keep coming. After Oct. 16, there was a roughly 10% outflow from Blackrock’s iShares MSCI Saudi Arabia ETF, which seeks to track investment results of a broad-based index comprised of Saudi Arabian equities. At press time, the fund’s total assets were down from a high of $270 million in December 2017 to $216 million.

Tom Sedoric, of The Sedoric Group of Steward Partners in Portsmouth, N.H., which has $10 billion in assets under management and who previously worked at Wells Fargo and A.G. Edwards, does not view those outflows as any sign of noteworthy investor flight.

“Is that significant? Probably not,” he says. Sedoric suspects the change reflects algorithmic trading from systems that track news stories and are triggered to sell automatically on that basis.

Shares of Blackrock’s fund were selling for their lowest prices in seven months last week and bumped up slightly Monday.

Earlier this year, the Saudi-centric ETF had delivered higher returns than any of the other 229 emerging market ETFs tracked by Bloomberg. In the six months between December last year and July, total assets in the ETF increased 20 times to $271 million.

On Oct. 15, the Monday after the weekend when U.S. Senators began calling for swift and united action against Saudi Arabia if Saudi agents killed Khashoggi, the share began dropping.

Then the next day, when news outlets reported that Saudi security services were linked to Khashoggi’s disappearance, the fund had a $13 million outflow.

As of Friday, the fund had reported another nearly $7 million in outflows.

A Blackrock spokesperson declined to provide comment for this story.