Not The Tzedakah Side Of Your Balance Sheet


What a difference a decade makes.

In 1998, when Philadelphia attorney Clifford Goldstein wanted to cash in on the staggering increase in Israeli technology stocks, he was disappointed to discover that no index-based mutual funds of Israeli companies existed.

“Wall Street is slow,” Goldstein says, noting that top brokerage firms he approached “told me they didn’t want to invest in kibbutzniks growing oranges.”

Today, with Israel’s economy going “gangbusters,” as Goldstein puts it, the Jewish state is poised to take its rightful place at the big people’s financial table. A few months ago, the FTSE (pronounced footsie) Group, a British provider of more than 100,000 indices, upgraded Israel from “advanced emerging market” to “developed nation.” And global benchmarker MSCI, maintained by Morgan Stanley Capital International, is expected to reclassify Israel as a “developed market” by 2010.

“Developed” status will likely boost Israel’s visibility and attract billions in foreign investments, particularly from pension funds and other large institutional investors.

This is good news for Israel and also for individual investors with a pro-Israel bent. In the past year, investing in Israel’s local markets from the United States has gotten a lot easier. There are now several options available for those seeking to rebalance their portfolios to better reflect their values — and make money, too.

“Don’t think of Israel as the tzedakah [charity] side of your balance sheet,” said Steven Schoenfeld, chief investment officer for quantitative management at Northern Trust, an investment firm for corporations, institutions and affluent individuals. “It’s good for Israel and good for your portfolio.”

On May 21, Northern Trust introduced the NETS TA-25 Index Fund (NYSE: TAV), an exchange-traded fund that tracks the Tel Aviv Stock Exchange’s flagship index, which includes the 25 largest Israeli companies by market capitalization. “The TA-25 Index has delivered strong returns in recent years, significantly outperforming developed market indexes such as the S&P 500,” Schoenfeld said at a recent breakfast announcing the launch of the fund. “The TA-25 Index also represents a well-diversified slice of the local Israeli market.”

The TAV’s top four holdings include Teva Pharmaceuticals, Bank Leumi, Israel Chemicals and Bank Hapoalim — each accounting for less than 11 percent of the fund’s holdings.

The fund’s weighting differs from that of the Barclays’ iShares MSCI Israel Capped Investable Market Index Fund (NYSE: EIS), an exchange-traded fund introduced in late March. Teva accounts for a whopping 25 percent of the iShares MSCI Israel ETF. “As goes Teva, so goes the ETF,” says Aaron Katsman, managing editor of, a research newsletter analyzing Israeli companies trading on the major U.S. Exchanges. The TAV, on the other hand, mimics Israel’s local market and is heavily weighted with Israeli banks, Bezeq [Israel’s leading telecommunications company] and other local companies, making it more sensitive to shifts in consumer confidence.

Both ETFs enable the average retail investor to gain exposure to local Israeli markets and tap into Israeli ingenuity. “Up until now it was just the big boys — the Warren Buffetts of the world and big multinational companies like Hewlett-Packard, Microsoft and IBM,” Katsman says. While the U.S. is experiencing a slowdown, Israel’s GDP has remained strong, hovering above 3.5 percent.

“Most countries in the world would kill for that growth,” Katsman says.

Investing in Israel offers an additional potential benefit — exposure to the shekel. “The shekel has been one of the strongest currencies in the world since the beginning of this year,” Katsman says.

Another newcomer to the Israeli investing world is the American Israeli Shared Values Capital Appreciation Fund, an actively managed mutual fund headquartered on the Upper East Side, launched by Jamia Jasper in December 2007. The fund invests in 47 companies, roughly half of them Israeli businesses and the other half U.S. companies that do business with Israel. Jasper, who earned an MBA from Cornell and worked for several years at The Bank of New York, says she wanted to take advantage of Israel’s dynamic and resilient economy. “Israel has been a good story for a long time, and people are just discovering it,” she says.

As with any financial investment, one should research the funds on Morningstar, the investment-rating service, or speak with a financial adviser to determine which fund is the best fit for an individual portfolio. Just don’t expect your financial adviser to bring it up on his or her own.

“Betting that your broker is adequately exposed to Israel is silly,” says Clifford Goldstein, who founded the AMIDEX35 Israel Fund 10 years ago, together with two members of the Israel Economic Mission. “It’s easy to invest in a broad-based international mutual fund and assume the fund holds some Israeli positions. They usually don’t.”

The first fund of its kind, AMIDEX35 Israel Mutual Fund (NYSE: AMDEX) invests in the 35 Israeli companies with the largest market capitalization trading on either the New York exchanges or the Tel Aviv Stock Exchange. Currently, the AMIDEX35’s holdings include 19 Tel Aviv-based Israeli company stocks and 16 that are listed on New York exchanges.

What accounts for the fact that AMIDEX35, for years the only game in town, now has so much company?

“Just look at the headlines of any financial newspaper,” explains Goldstein. “[U.S.] banks and mortgage-backed securities and financial institutions that believed so heavily in them are collapsing like a house of cards. Israel had virtually no exposure to the mortgage-backed securities crisis.”

Goldstein welcomes the newfound competition. “It took Wall Street a decade to wake up, and I applaud them,” he says. The new funds will continue Goldstein’s core mission of educating Americans about the enormous opportunities in Israel, he says. “I’m always shocked by the number of people who are shocked that Israel has a stock market, that Israel has an economy and that it’s doing well,” he says.

Goldstein begins rattling off examples of Israel’s ingenuity. “Did you know that Israel is the leading producer of antibiotics?” he asks. Israel also has the highest number of engineers, scientists and Ph.D.s per capita in the world. The cell phone was developed in Israel, as were flash memory and instant messaging. Simply put, he says, “Israel represents prosperity with a capital ‘P.’”

The reporter has no positions in any of the funds mentioned in the article.