The iShares MSCI Israel Capped ETF (NYSE:
) and the Market Vectors Israel ETF (
) both languished as tensions in Syria escalated.
Amid speculation the U.S. could launch a military offensive
against Syria, EIS fell nearly six percent from August 12 through
September 3 while ISRA, the newer of the two Israel ETFs, lost
Israel ETF Plunges After Hamas Strike
Those declines, while underscoring the risks associated with
any ETF with significant exposure to the Middle East, should not
obfuscate the fact that Israeli stocks have recently been solid
performers, a story that is not getting much attention.
Tel Aviv's benchmark TA-25 Index rose again today, extending
its winning streak to nine days. While stocks in Tel Aviv trade
at the highest levels in over two years, they are not richly
valued. The TA-25 trades at 11.7 estimated earnings, or 29
percent lower than the average for the MSCI World Index of
according to Bloomberg data
in late June as the first real competitor to
and since that debut, the new Israel ETF has gained 7.3 percent.
EIS, with $75 million in assets under management, has not been a
slouch over that 90-day period, either, returning 5.3
Recent strength in Israel ETFs might be attributable to the
central bank's Federal Reserve-esque ultra loose monetary policy.
In May, Bank of Israel
lowered interest rates twice
, taking rates to 1.25 percent in an effort to guard against a
strong shekel. The moves make sense because exports account for
40 percent of Israeli GDP.
Both ETFs feature significant allocations to Teva
), the generic drug giant. EIS has a weight of 22.3 percent to
the stock, making ISRA's 12.8 percent weight to Teva look small
by comparison. There are, however,
significant differences between the two ETFs
for investors to consider.
While Israeli stocks are cheap, foreign investors should
consider opting for increased exposure to Israel's booming tech
sector, one that accounts for a quarter of the country's exports.
ISRA devotes 32.5 percent of its weight to tech, nearly five
times the weight EIS allocates to the sector. That is an
important factor because if the recent rate cuts have the desired
impact of weakening the shekel, Israeli tech exporters will be
more profitable and that should translate into higher prices for
U.S.-listed tech names in ISRA's lineup include Check Point
), Amdocs (NYSE:
) and Mellanox Technologies (NASDAQ:
At the end of August, ISRA had P/E ratio of 15.3 compared to
27.25 for EIS,
according to Market Vectors data
. ISRA has brought in $23.3 million in assets since coming to
For more on ETFs, click
Disclosure: Author does not own any of the securities
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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