New index fund that tracks Israeli companies launches in US

An exchange-traded fund (ETF) focusing on Israeli assets launched in New York on Wednesday, hoping to compete with the MSCI Israel Index Fund as a better benchmark for the Israeli economy.

June 27, 2013 23:16
2 minute read.
Tel Aviv Stock Exchange

Tel Aviv Stock Exchange TASE 311 (R). (photo credit: Gil Cohen Magen / Reuters)

An exchange-traded fund (ETF) focusing on Israeli assets launched in New York on Wednesday, hoping to compete with the MSCI Israel Index Fund as a better benchmark for the Israeli economy.

Unlike the five-year-old MSCI Israel Index Fund (EIS), the new Market Vectors ISRA Fund relies on an index of Israeli equities listed not just in Tel Aviv but also in the London, New York and Warsaw stock exchanges. ISRA relies on an index called BIGI from BlueStar, a research-focused financial firm specializing in Israeli capital markets.

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“The importance of having an ETF based on BIGI in the US market is that all types of investors – large institutions like the Miami Federation’s Endowment Fund and small individual investors – can equally access ISRA, and we have seen demand from both types of investors,” said BlueStar’s Steven Schoenfeld. Other indexes are “less efficient” in tracking the Israeli economy, he said.

To be included in the fund, a company can either be founded, domiciled or managed in Israel, or hold significant research and development facilities in the country. If Israeli companies such as Mellanox, for example, delist from the Tel Aviv Stock Exchange, they can still keep their place in the index.

BlueStar’s approach means companies like Perrigo Company and LivePerson Inc., which are not originally Israeli but are listed in Tel Aviv, can also be included. The same applies to VeriFone Holdings Inc., which delisted its shares from Tel Aviv several years ago but still has development activity in Israel as a result of the acquisition of Lipman.

Delek US Holdings Inc. and Alon USA Energy Inc., Israeli fuel refining and marketing companies active in the US, are also in the index.

“Many people don’t know that these are Israeli companies, and when we talk to them about investment in Israel, we mention to them that these companies generate employment in the US,” Schoenfeld said.

The weighting of each company on the index is set according to its market cap, with the quantity of floating shares in the hands of the public also being taken into account. The investment committee, manned by people with experience of running ETFs, among them the person behind the compilation of the MSCI indices, examines the composition of the index every six months.

The company with the highest weighting on the index is Teva Pharmaceutical Industries Ltd., with 12.75 percent, the maximum weighting allowed. In the distribution among sectors, computing and technology stand out, amounting to 30% of the total. Pharmaceuticals represents 26% of the index, while the financial sector, composed of banks and insurance companies, represents 19%.

“Israel is uniquely positioned to offer investors emerging-market growth characteristics with a developedmarket approach to economic management,” said Amrita Bagaria, the ETF product manager with Market Vectors.

“The country has a vibrant economy with broad sector representation. With that in mind, we have selected an index for ISRA that best represents the Israeli market and captures the full spectrum of economic growth potential.”

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