10.27.2014
By Terry Flanagan

Investing in Israel: More Than Technology

When it comes to investing in Israel, technology is a big part of the story, but it isn’t the only story, according to Steven Schoenfeld, chief investment officer of BlueStar Global Investors.

“Israel is actually a multifaceted story,” Schoenfeld said last week in a panel discussion on the TA-25 Index. “Israel’s tech economy, particularly with the publication of the book Start-up Nation, is the sexier part of Israel, and especially because you see so many of those tech companies coming to list in the New York, that’s a big part of the economy. But, in fact, even if you include all of those tech companies, it’s only about 30 to 35% of Israel’s market cap.”

BlueStar specializes in the Israeli capital markets. Its mission is to develop investment strategies that provide global institutional and retail investors efficient access to the full range of Israeli asset classes.

Its flagship product is the BlueStar Israel Global Index, a benchmark designed for providing balanced sector exposure to Israel’s dynamic economy. The index is designed to serve as an asset allocation tool, a performance benchmark, and the basis for investment products.

“I don’t want to down play tech at all,” said Schoenfeld. “Tech is the best part of the Israeli economy. But you have a lot of very profitable companies in almost every industry in Israel.”

Josh Lukeman, head of Delta Trading Americas at Credit Suisse, said: “Clients are, absolutely very interested in the tech story within Israel. And many of the questions we field are, ‘How can we get efficient exposure to Israel?’ The play on tech is absolutely foremost in their consciousness, although it’s not the entire story.”

Much of the Israeli economy is tied to technology, if not pure technology, such as pharmaceuticals and health care. “When we explain the Israeli economy to investors, we say, ‘You want to own a broad cross section of this economy,’” said Schoenfeld. “And that isn’t just exports. Israel does have 8.1 million people. It has supermarkets, banks, real estate. It has good companies to invest in that make money from the local Israeli economy.”

Noted Lukeman, “Everything is almost tech in Israel, so whether you’re talking about pure tech, agri-tech, defense-tech, bio-tech, the tech element is such a crucial element of it that it’s very difficult to circumvent.”

The Israeli currency is closely tied to the Bank of Israel’s monetary policy, Israel’s fiscal policies, and the world economy. “So when the U.S. dollar weakens, the shekel will strengthen,” said Schoenfeld. “But even when the U.S. dollar has been strengthening against the euro, the shekel has been strong. It actually strengthened during this summer’s war with Hamas.”

Investors are concerned about geo-political risk. BlueStar’s two exchange-traded funds that are listed in the U.S. provide full exposure to the currency. “So you’ll get the appreciation of the equity market, but if the shekel did decline, that would reduce your return,” said Schoenfeld. “If the shekel increased, that would increase your return.”

Featured image via Alxy/Dollar Photo Club

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