An exchange-traded fund focused on Saudi equities offered by BlackRock Inc. in New York since 2015, the year when the oil-rich kingdom started opening up to foreigners, drew net inflows of about $626 million this year, quadrupling in size from the end of 2018.

Still, that’s dwarfed by the $1.5 billion that has poured into BlackRock’s London-listed ETF, which has very similar objectives but is only three months old. A London-listed fund run by Invesco Ltd. that was started last year has attracted $1.1 billion in 2019. Both European options are now bigger than their American predecessor.

Saudi stocks have outperformed as index compilers including MSCI Inc. promote the biggest market in the Middle East and Africa to their major emerging-market benchmarks, spurring billions in purchases by passive investors. The New York and London ETFs are studded with large caps that will benefit from the upgrades and have become a favoured option for individual investors placing a wager on the Saudi market.

BlackRock started its London fund after “significant client demand for an exposure to take advantage of Saudi Arabia’s reclassification,” a spokeswoman for the world’s largest asset manager said in an emailed response to questions.

As Saudi Arabia’s elevation by index compilers moves forward, investors could be favouring the European funds due to lower fees and the greater flexibility they offer in terms of dividend treatment, according to Louis Odette, an ETF analyst and strategist at Citigroup Inc. in London. Differences in withholding tax treatment may also play a role, he said.

Some investors may also prefer funds run under European Union rules, according to Odette. “Operational preferences and familiarity with the UCITS framework can be relevant.”

That acronym refers to Undertakings for Collective Investment in Transferable Securities, the 34-year-old framework of regulations for funds that are officially based and sold in the EU but can be managed from New York, Hong Kong or elsewhere. The EU has set rules on funds’ liquidity requirements, risk limits, transparency and leverage, and UCITS products can use derivatives to create some leverage and short exposure, but not as much as traditional hedge funds.

In the U.S., the Securities and Exchange Commission authorizes and regulates publicly traded funds under the Investment Company Act of 1940.

Whatever the rules, ETF buyers in both markets have been rewarded for their investment. The main Saudi equities index has climbed more than 20% in the past two years, outperforming the MSCI emerging-market index seven-fold.

The gains in Riyadh stocks are partly thanks to foreigners, who have been net buyers of Saudi Arabian shares every week this year, a reversal from the sell-off in October triggered by U.S.-based columnist Jamal Khashoggi’s killing. Inflows have remained steady even as geopolitical tensions in the Gulf ticked higher after attacks on oil tankers since May.

The Khashoggi incident and it’s market aftermath are a reminder to investors that buying Saudi assets isn’t a one-way bet.

Saudi-focused exchange-traded funds offer the advantage of easy access to the upgrade story, and have “done a good job in attracting assets this year,” said Mohit Bajaj, director of ETFs at WallachBeth Capital in Jersey City. Still, “investors do tend to stray away from Middle East funds dependent on the political landscape.”