With few natural resources, hostile neighbors in every direction, limited water supplies and a heavy dependency on imports for many staples such as cars, trucks and industrial equipment, you’d suspect the Israeli economy would struggle to stay afloat. Yet this economy has managed to neatly side skirt the recent global economic woes and expanded at a nearly 5 percent pace in both 2010 and 2011. Though growth slipped to 3 percent in 2012 and is likely to remain at that level this year, the Organization for Economic Cooperation & Development (OECD) predicts growth will move back up to 4 percent by next year.

What’s Israel’s secret? It’s not an abundance of milk and honey, as the Bible suggests. Instead, it’s a culture that fosters entrepreneurialism, and a strong emphasis on technology research.  “A lot of tech firms got their start in Israel, even though they now derive the bulk of their sales elsewhere,” says Steven Schoenfeld, founder of BlueStar Global Investors, a research firm focused on Israeli equities.

Schoenfeld is also the chief investment officer for BlueStar Indexes, the index partner for the Market Vectors Israel ETF (ISRA), which formally launched yesterday on the NYSE Arca exchange. The fund seeks to replicate the BlueStar Israel Global Index, a rules-based index that tracks publicly traded companies considered to be Israeli and Israeli-linked companies.

The Market Vectors fund joins the iShares MSCI Israel Capped Investable Market Index Fund (EIS) as one of two Israel-focused equity ETFs on the market. EIS has been plodding along since its March inception date in March 2008 with an annualized return of just barely above break-even.

Based on historical data, the ISRA fund’s underlying index has had annualized gains of 5.3 percent during the past five years.

The relative weakness in the iShares fund may be due to the fund’s construction––it weights its holdings by market cap and has a 24 percent maximum on any given holding. As such, its 24 percent weighting in drug maker Teva Pharmaceuticals has bogged down the fund because the stock trades lower than it did five years ago.

The Market Vectors Israel ETF, in contrast, aims to have greater diversification and limits any holding to 12.5 percent of the portfolio. The top 10 holdings account for less than 50 percent of the portfolio, compared to 68% for the iShares fund.

And while the iShares fund seeks to focus on companies that are domiciled in Israel, the Market Vectors fund will hold stocks that meet one of four criteria: A listing on the Tel Aviv stock exchange, corporate headquarters in Israel, 50% or more of its revenue base derived in Israel, or is determined to be a local company by Israeli tax authorities.

Another distinction: The iShares fund tends to more squarely focus on Israel’s biggest stocks, while the Market Vector fund also has exposure to mid- and small-cap stocks. The smallest stock in the fund has a market value of around $130 million, and the average holding is worth $1.9 billion.

In terms of costs, the iShares fund sports a 0.60 percent expense ratio versus the 0.73 percent expense ratio for the Market Vectors fund. (Though Market Vectors is rebating 0.14 percent of that fee to investors until May 2014, meaning the current net expense ratio is 0.59 percent).