Israel ETFs Might Be the ‘Ideal Overlooked Destination’

Includes: EIS, ISL, TEVA
by: Tom Lydon

Israel and its related exchange traded fund (ETFs) have attracted a lot of foreign money. Investors can’t seem to stay away from the country’s technology industry.

Foreign direct investment (FDI) has pushed Israel’s Tel Aviv 100 (TA100) into positive territory in the past 12 months, and the index is now outperforming the S&P 500 by more than 20%, writes Daniel Harrison for IndexUniverse. Between May to July, FDI made up $1.02 billion of share purchases, which allowed TA100 to experience 60% in value year-to-date.

Many investors see the potential in Israel’s high-tech, chemical, metal and service industries. Some index investors are uncertain whether the country should be categorized as an emerging market or a developed country, although it was upgraded to developed by the FTSE Group last year.

There are also more broad-based ETFs that include a small weighting of Israel, but these portfolios tend to have volatile, high-growth countries that overshadow Israel’s exposure. There are two ways to invest in Israel: The ETF iShares MSCI Israel Cap Invest Mkt Index (NYSEArca: EIS) or the closed-end fund (CEF) First Israel Fund Inc. (AMEX: ISL). Both invest in Israel-listed securities.

  • ISL trades at a discount to its net asset value (NAV), which makes it more attractive to bargain seekers. The fund, however, contains a 10.4% exposure to venture capital projects, which could make the fund riskier but potentially more profitable.
  • ISL is seen as more diversified, with 49% of its capital invested in the fund’s top 10 holdings. The largest holding is Teva Pharmaceutical Industries (NasdaqGS: TEVA) at 12.6%. The fund is also more heavily weighted in financials, with 31.9% focused on commercial banks, venture capital investment funds and insurance.
  • EIS has a higher stack in TEVA at 23%. It should be noted that pharmaceutical companies are more defensive plays compared to higher-growth sectors. Financials make up around one-fifth of EIS’s weightings.
  • iShares MSCI Israel Cap Invest Mkt Index: Up 59.4% year-to-date; expense ratio of 0.63%
  • First Israel Fund Inc.: Up 69.5% year-to-date; expense ratio of 1.7%

Max Chen contributed to this article.