Stocking Up On Israel

When Clifford Goldstein was 7, his father took him to the Waldorf Astoria Hotel for a stockholders meeting of the Israeli company Ampal.

"I had five shares, so I went with him and I liked the feel of it," he recalled. "People were there as investors, but my father was there more because he wanted to invest in Israel."

Goldstein, a Newark, N.J., native, said that when his father, Jacob Goldstein, died in 1997, he decided to "continue my father’s legacy of investing in Israel. So I started to look for an Israeli mutual fund." But what he was looking for did not exist.

His pursuit of information about Israeli companies led him to Israel’s Economic Mission in Manhattan, where he met with its chief economist, Boaz Rahav. The more they talked about such a fund, the more they realized the potential of starting one. So when Goldstein, 42, left his own 50-member law firm in Philadelphia to become the founder of Amidex 35, Rahav left his job and became the fund manager.

Amidex 35 went public last June 8 at a time when conditions were right "politically and economically," Goldstein said.

He explained that such funds could not have worked in the past "because the Israeli market was too small. But now, the value of Israeli stocks is over $100 million. … And the renewal of the peace process has changed people’s outlook and perception about Israel and the Middle East. Global investors are always looking for the next emerging region and as prospects for peace increase, so do the prospects for a truly regional economy in the Middle East. And Israel will be at the center."

The Israeli economy is now well under control, Goldstein added, noting that inflation this year is about 4 percent. And he said the explosion of Israeli high-tech companies is a recent phenomenon.

"People may not realize that Israel is dominating niche markets in technology, most of which are business-to-business technologies and applications," he said.

For instance, the company that provides the billing software for the "lion’s share" of cell phones is the Israeli company Amdocs, Goldstein noted. And there is a 75 percent chance that phone calls made in the United States are made using technology provided by ECI Telecom, another Israeli firm, he said.

In addition, Comverse provides the voice mail technology used by phone companies, and Teva Pharmaceuticals is one of the leading manufacturers of generic drugs in the United States, he observed.

Unlike First Israel Fund (a managed fund) Amidex 35 is not managed but rather invests in the 35 largest Israeli companies, whether they are traded on the stock exchanges in Tel Aviv or New York. Last year, 19 of the companies were traded in Tel Aviv and 16 in New York. When the fund managers checked the figures in December, five new stocks were added and the others dropped to reflect current market valuation. As a result, the Amidex 35 now consists of 18 companies traded in Tel Aviv and 17 in New York.

"I didn’t want to get involved in stock picking because there is no reliable way to pick stocks," said Goldstein. "The best way is to pick an entire basket of stocks so that you spread the risk and eliminate the potential for error based on market timing decisions. This is why S & P indexed funds have become so popular because it removes the potential for error. And fund managers have an awfully hard time constantly beating the index."

But although the S&P 500 experienced a growth of 19.53 percent last year, Goldstein noted that other indexes did better. The Nasdaq composite index rose 85.59 percent, the Dow Jones Industrial average was up 25.22 percent, the Tel Aviv 100 was up 62.47 percent and the Amidex 35 index rose 86.03 percent. Because the fund was not traded until June, the increase after expenses was 42.9 percent.

"It was an exceptional year," Goldstein said.

There are 700 Israeli stocks traded on the Tel Aviv Stock Exchange and 120 traded in New York. But the value of the companies traded here is greater than the companies traded in Tel Aviv.

"If you were looking to buy Israeli stocks and you bought those traded in Tel Aviv, you would be missing more than half of the Israeli market [in terms of value]," said Goldstein. "Most high-tech Israeli companies are located on the Nasdaq. In fact, 82 percent of the Israeli stocks traded in New York are high-tech."

The Tel Aviv Stock Exchange has traditional companies, such as banks, insurance companies, retail chains, chemical companies and holding companies.

An investor who bought only those Israeli companies traded in New York "would have missed out" on the 78.5 percent rise in the stock of Bank Hapoalim and the 52.5 percent stock price increase for Bank Leumi, Goldstein said.

"Investing abroad is always riskier [than in the U.S.], but the potential for return can be greater," he added.

For information about the fund, call (212) 425-0650.