NETS TA-25 Index Fund: Real Israel Exposure for U.S. Investors

For the past few years, U.S. investors have tried to access the growth in the Israeli market without having a true index vehicle for doing so. The Amidex35 [AMDEX] is probably the most accurate vehicle for those looking to get exposure to Israel as a whole. It’s an interesting index, splitting total market cap between Tel Aviv and the U.S (around 60/40). So, you get local Israel exposure with some growth-y tech companies layered into the index.

Kudos to Amidex’s Cliff Goldstein who recently shared some time with us on CNBC and spoke about Israeli companies and the market opportunity as a whole. We interviewed Cliff a couple of months ago and it’s worth reading that interview again here.

There is a recent entry to the Israel party called the iShares MSCI Israel Capped Investable Market Index Fund (NYSE: EIS). Recently, we wrote about the EIS being the first ‘real’ Israeli ETF to market. This fund works because it’s got big backing (Barclays’ iShares), exposure to local Israeli firms, and is a departure from previous attempts (see our coverage on the GAF) to package Israeli together with the greater Middle East.

That said, we’ve had some reservations about the EIS. One of which is Teva’s (Nasdaq: TEVA) overwhelming exposure of about 25% market cap of the index. Whether or not TEVA is a good investment is not the issue — Teva represents about 9% of the local Tel Aviv 25 Index and by loading up on the global leader in generic drugs, you skew you exposure to Israel. The local index is about chemicals, banks, food — like any other domestic play.

So, along comes Northern Trust with their ‘new’ NETS ETF products. So, another ETF firm introducing country exposure? Well, these new securities are a bit different. They actually attempt to reproduce local country exposure by replicating the most common index used locally and not by using an MSCI index (or some other like many of the existing ETFs do). So, for Israel, that would be the Tel Aviv 25.

Northern Trust is launching the NETS™ TA-25 Index Fund (NYSE: TAV) which was scheduled to begin trading on Tuesday. According to what the CIO for Quantitative Management at Northern Trust, Steven Schoenfeld, told IOI, “[In our attempt to track the TA-25], we will rarely (if ever) have any stock at a weight over 10%”.

Nice.

Here’s a link to the prospectus. It’s got an expense ratio of 0.70%. What’s interesting is while the index components may match the TA25, the weightings of the components don’t mirror the actual index weightings. For example, let’s take TEVA again from our previous example. The TA25 has TEVA weighted at 9.5% while the TAV has it at 8.32%. Not a huge difference but there are a few examples of this. We’re not sure if this would have a big impact on a differential in returns, but it’s worth noting.