Israel presents an interesting dichotomy in that it is a highly developed and technologically advanced market, yet it is highly volatile due to the well publicized clashes within the middle east region. The country has the highest concentration of scientists and technicians of any country in the world, including the greatest per capita of engineers and doctors. Israel has seen significant population growth, which is a key economic driver (over 1 million immigrants, growing the populous base 21% from 1990-2005).
There are no iShares ETFs representing the country such as those for say, Brazil (EWZ) or Hong Kong (EWH), but I did come across a mutual fund that seeks to represent Israel's market. The Amidex 35 Fund [AMDEX] invests in the 35 largest Israeli companies traded on U.S. or Israeli exchanges. The holdings are quite diverse, analogous to our Dow 30. The performance compared to the U.S. majors has been spectacular, roughly doubling the return of the S&P500 over the past 2 years. It is a no-load fund. The expense ratio is relatively high at 3.39%, but given its unique characteristics and performance, it still makes for a good holding.
Next, I wanted to highlight an Israeli stock that is not part of the Amidex 35 portfolio, but warrants attention. The software company BluePhoenix Solutions (BPHX) has been on a complete tear this year, doubling in price during the past 3 months alone. Their main business lies in upgrading legacy systems via mainframe migrations. They derive the majority of their revenues from tools and services provided in this arena to companies worldwide. Currently, they have a steady backlog of work which translates into steady revenue/earnings growth and pricing power. Below is a chart showing their performance to both the Amidex 35 and the S&P500; BPHX is up over 200% int the past two years.
I see limited political/military risk to this company due to the nature of its business and the fact that they have operations in other low cost regions outside Israel, like Romania and Russia anyway. Regardless of the stability in the region, this company should remain unaffected.
Disclosure: Author has a position in the above-mentioned securities