I own three Saudi-listed ETFs. Each one has a different job.

I own individual Saudi stocks. I also own three ETFs.

That is deliberate.

I use individual stocks when I want exposure to a particular company. I use ETFs when what I really want is exposure to a market, geography or asset class without having to decide which individual company will win.

I realised recently that although I show both in my portfolio updates, I have never properly explained why I own the ETFs, what is actually inside them, or what job each one is doing.

So let's fix that.

ETF stands for exchange-traded fund.

The simplest way to think about it is as a basket of investments that you can buy and sell on an exchange just like a normal share.

Instead of buying one company, you buy one ETF and gain exposure to all the securities inside it.

If an ETF tracks a US equity index, for example, one purchase can give you exposure to hundreds of American companies.

That is the attraction.

You do not need to decide whether Microsoft will outperform Apple, or whether Nvidia will outperform Amazon. You can simply decide that you want exposure to the US market.

There is one important distinction though.

An ETF diversifies the number of securities you own. It does not necessarily diversify the risks you own.

An ETF can hold 30 companies and still be heavily concentrated in three or four of them. Or in one sector.

That matters particularly in Saudi Arabia, where financials, energy and a relatively small number of large companies can make up a significant part of an index.

So "I own an ETF" and "I am diversified" are not necessarily the same thing.

The Saudi Exchange ETF market is still relatively small, but there is enough there to build different kinds of exposure.

Broadly, you will find a few categories.

Saudi equity ETFs give you exposure to baskets of Tadawul-listed companies. Instead of choosing individual Saudi stocks, you can buy part of the wider market.

International equity ETFs give you exposure to markets outside Saudi Arabia while still buying and selling the ETF on Tadawul in Saudi riyals. I use one of these for my US exposure.

Sukuk ETFs hold Islamic fixed-income securities, including Saudi government sukuk. These tend to behave very differently from equities and can provide income and stability within a portfolio.

There are also more specialised ETFs, but for me these three categories are the most relevant.

And conveniently, they are exactly what I own.

824 units as of August 2026.

This is currently my largest ETF position.

It tracks the MSCI USA Index, giving me exposure to large and mid-cap US companies. Think Microsoft, Apple, Nvidia, Amazon and many of the other companies that dominate the American market.

You could reasonably ask why I own this when I also invest directly in US stocks.

I see the two portfolios differently.

When I buy an individual US company, I am making a specific decision about that business.

This ETF isn't trying to do that.

I am simply saying: I want exposure to the US market.

It also means my Saudi portfolio isn't completely dependent on what happens in Saudi Arabia.

The riyal's peg to the dollar makes the exposure relatively straightforward from a currency perspective, although the underlying investments are still US-dollar assets.

Since I bought it, the position is up approximately 18%. It has been the strongest performer in the Saudi portfolio.

But that isn't why I own it. I own it because of the diversification it gives me.

348 units.

This one does something completely different.

It gives me broad exposure to the Saudi market.

You may be wondering why I need that when I already own Aramco, Jarir, Al Rajhi, SNB and STC individually.

Because those are two different decisions.

The ETF gives me the market. My individual stocks are where I am choosing to deviate from the market.

If I buy more STC directly, for example, I am deliberately saying I want more exposure to STC than the index would naturally give me.

The same applies to Aramco, Al Rajhi or any other company I hold both directly and indirectly through an ETF.

There is overlap. I am comfortable with that.

What matters is knowing the overlap exists.

This is also why you should always look under the hood of an ETF rather than assuming that owning one automatically means you are diversified.

You may already own far more of a particular company or sector than you realise.

219 units.

This is probably the least exciting investment in the portfolio.

That is also the point.

It holds Saudi government sukuk.

I am not expecting it to produce the kind of returns I might get from a successful equity investment. Its job is different.

It gives me fixed-income exposure, provides some income and helps reduce the overall volatility of the portfolio.

When equities move sharply, this position tends to be much calmer.

I sometimes think investors expect every position in a portfolio to be trying to produce the highest possible return.

I don't.

Some investments are there for growth.

Some are there for income.

Some are there for diversification.

And some are there so you don't have to watch everything fall at once when markets get uncomfortable.

This one is here to do the last two.

1. What does it actually track?

The name of the ETF is not enough.

Look at the underlying index. Then look at the companies or securities inside it.

You should be able to explain what you own without reading the ETF's marketing material.

2. Concentration

Look at the top ten holdings.

Then look at the sector weights.

An ETF containing 30 or 50 companies can still be heavily dependent on a handful of businesses.

This becomes particularly important if you also own some of those companies individually.

3. Liquidity

Some Tadawul ETFs trade much more frequently than others.

Low liquidity can mean a larger difference between the price someone is willing to pay and the price someone is willing to sell at.

That difference is the bid-ask spread.

The wider it is, the more it can quietly cost you when buying or selling.

4. Fees

Every ETF charges fees.

Small differences don't look particularly important over one year.

Over ten or twenty years, they start to matter.

I don't automatically choose the cheapest ETF, but if two funds are doing essentially the same job, I want to understand why I should pay more for one.

5. Sharia compliance

If this matters to you, check.

Don't assume based on the ETF's name or because it trades on Tadawul.

Look at the fund documentation and understand exactly what you are buying.

I don't use ETFs because I don't want to pick stocks.

I use them because there are parts of my portfolio where I don't need to.

I don't have a particularly strong view on whether Microsoft will outperform Apple over the next decade. What I do believe is that I want exposure to the US economy.

The US ETF does that job.

I want exposure to Saudi Arabia beyond the companies I have individually selected.

The Saudi ETF does that job.

And I want something in the portfolio whose job isn't to produce spectacular returns at all.

The government sukuk ETF does that.

My individual positions are different.

When I buy STC, Aramco, Jarir, Al Rajhi or SNB directly, I am making a deliberate decision to own more of that particular company.

The ETF gives me the market. The individual stock is where I decide I want something different from the market.

Neither is inherently better.

And you certainly don't need both.

You could build a perfectly sensible long-term portfolio entirely from ETFs. You could also choose individual companies if you have the time, knowledge and willingness to accept the additional risk that comes with getting those decisions wrong.

For me, the combination works.

More importantly, every position has a job.

I think that matters far more than whether the ticker says ETF or individual stock.

Because a portfolio shouldn't just be a collection of things you bought.

You should know why each one is there.

Next issue: Vision 2030 is four years from its deadline. We hear a lot about what Saudi Arabia plans to build. I want to look at what has actually been delivered.

What is on track? What is behind? What has quietly been scaled back? And perhaps most importantly for investors: which parts of that story does my portfolio already own?

The Quiet Compounder is for educational purposes only and is not financial advice. Always do your own research or consult a licensed advisor before making investment decisions.