One Part Developed, One Part Emerging
Israel has more companies listed on the Nasdaq (86) than any country outside the United States, except for China. And China’s population is 172 times larger.
Though there’s a strong connection between Israel and technology in the minds of many U.S. investors, the iShares fund actually has its heaviest weighting in financial services, which accounts for 30 percent of the portfolio. The Market Vectors Israel fund is led by information technology stocks with a 30 percent weighting. Both funds count on healthcare stocks as the second-biggest sector concentration.
“There’s no question that technology is under-represented in other Israel-focused ETFs,” says Schoenfeld.
As investors wrestle with the current meltdown in emerging markets, is this a bad time to invest in a country with just 7.8 million people? Schoenfeld notes that when Israel joined the OECD in 2010, it agreed to a wide range of “best practices” in terms of regulation, transparency and corruption. Pair that with the country’s impressive economic growth rates, and “Israel offers the best of both the developed and the emerging economies,” Schoenfeld says.
Investors are rightly concerned about Israel’s geo-political risk, and the possibility of an Israeli economic slump in the face of fresh Middle East tensions? But almost all major Israeli companies derive the majority of their revenues from abroad, and are fairly well insulated against domestic demand concerns. Only the Israeli banking sector derives the bulk of its revenue domestically.
Investing in Israel would seem to be quite risky in light of the headwinds the country continually faces. Yet those constant pressures have led to a battle-hardened attitude that has fostered a dynamic business culture and impressive investment returns. Market Vectors’ new Israel-focused ETF looks poised for success as the country continues to deliver robust economic growth rates.