The decline in activity by foreign investors is one of the main causes of the drop in trading turnovers on the Tel Aviv Stock Exchange (TASE) in recent years.

A special exchange traded fund (ETF) was launched in the US a year ago that makes it possible to acquire exposure to Israeli companies relatively easily.

This ETF aroused hope that it would be able to attract interest from foreign investors, thereby improving TASE trading turnovers to some extent. A year after the launching, it is time to consider how it stands with respect to the expectations from it when it was launched.

The ETF of BlueStar Indexes, headed by founder and chief investment officer Steven Schoenfeld, follows an index called BIGI, which it devised a few years ago. What is special about this index and the ETF that tracks it is that it does not track the Tel Aviv 25 Index or any other index on the TASE; it is composed of all the leading Israeli companies, regardless of which stock exchange they are listed on.

The ETF that tracks this index, which was launched in June 2013, is listed under the ISRA symbol in the framework of the international Market Vectors brand of Van Eck, the fifth largest ETF company in the US.

The ETF began with $10 million in assets. In a "Globes" interview at the time, Schoenfeld said, "The product's potential is vast, and we hope that the ETF will manage $100 million within one year, and $500 million within five years."

The target was too high

In retrospect, the target set by Schoenfeld was too high. Today, one year after it was launched, the ETF has assets totaling $47 million and an estimated average daily turnover of 9,500 shares ($300,000).

"Globes": One thing I have to ask - are you not disappointed that the ETF has only $47 million after a year? When we spoke last year, you told me that you hoped that the ETF would have 100 million dollars in assets in one year, and $500 million after 5 years.

Schoenfeld: "While of course we'd prefer that assets were $80 million or $100 million or more, both I personally and our strategic partners in launching ISRA (Market Vectors, and the Miami Jewish Federation) are all quite proud of our achievements, especially the fact that ten Jewish Federations/Endowments have already committed part of their portfolio to Israeli equities via ISRA, but also the knowledge that many more are deep 'in process' of assessing the BIGI benchmark and an allocation to Israeli Global Equities via ISRA."

Do you believe that you'll manage to reach $500 million in assets?

"I remain positive about the prospects for ISRA's asset growth in the coming months and its second year.

"A number of articles have been written in the US about the ETF, and the message is getting through. I really believe that $500 million in assets in the fifth year is achievable."

US, London, Israel, and Poland, too

ISRA has been successful in a different sphere: over the past year since it was launched, the ETF has climbed 25%, while the other ETF listed in the US that invests in Israeli companies, iShares MSCI Isral (ticker symbol: EIS) had a 21% return, and the Tel Aviv 100 was up only 19%.

The company with the most weight in the index is Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA), which accounts for 12.6% of it, close to the maximum weight that a company can reach on the index.

Segmented by sectors, one of the most prominent sectors in the index are computers and technology with 26% of the index. This also explains the better yield in comparison with other indices, given the 30% rise in the Nasdaq index over the past year.

The pharmaceuticals sector accounts for 29% of the index, and the financial sector, composed of banks and insurance companies, accounts for 14%.

When the ETF was launched, it contained 93 Israeli companies listed on stock exchanges in the US, Israel, London, and Poland. The biannual revision of the index took place last week, in which 14 companies were added to it and two were dropped. The index currently has 114 companies.

Among the companies added to the index in the recent revision were Israeli companies that recently held overseas offerings, including SafeCharge International Group plc (AIM: SAFE) in London and Varonis Systems, Enzymotec Ltd. (Nasdaq: ENZY), Borderfree Inc. (Nasdaq: BRDR), and Lumenis Ltd. (Nasdaq: LMNS) on Nasdaq.

Published by Globes [online], Israel business news - www.globes-online.com - on July 3, 2014

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