10/8/2012 12:50 PM by Zacks ETF Research–Israel has had a tumultuous history since its inception back in 1948. Be it the age old conflict between its immediate neighbors or with much larger states like Iran, Israel has continually been in the spotlight from a geopolitical perspective.
However, amidst endless political animosity and conflict, the nation has been able to make a name for itself on the economic front. The country’s economy has proven to be quite resilient and a hotbed of technological innovation, despite constant worries from its political situation.
The country’s strong economic policies and adequate capitalization of banks have coupled with efforts to remove barriers to trade and capital flows to the rest of the world have gone a long way in facing the challenges posted by the global economic downturn (see Peru ETF Investing 101 ).
In fact, the International Monetary Fund (IMF) has said that “Israel economy is strong despite the global crisis” . The IMF has also praised their fiscal policies that have kept the economy relatively safe from the economic contagion affecting developed economies in the rest of the world. Also, a low rate of inflation and modest levels of unemployment are the key positives for the nation going forward according to the IMF.
However, political and social unrest have acted as a major bottleneck in the Israeli economy growth trajectory. As Iran becomes more and more likely– at least according to some-a nuclear power, it is widely believed that the Islamic nation will clash with the Jewish state before long.
After all, along with Israel, many of the major Western nations (including the U.S.) have also opposed the idea of Iran possessing a nuclear weapon. Given these circumstances, it is quite possible that the two nations might square off in the near future. Although this is by no means guaranteed, if it happens, it could have serious negative implications in the Israeli economy (read Is The Israel ETF Back On Track? ).
Nevertheless, some maintain that a diplomatic situation will be achieved with Iran or that the issue will not boil over into a full scale conflict. As we have seen in North Korea, at least so far, a rouge state with nuclear weapons is not always the end of the world, and if anything, can allow investors to get into nearby countries at a geopolitical discount.
Given this, some investors may want to consider a closer look at the Israeli economy despite the headwinds that are currently facing the nation. For this exposure, investors should probably look to the top ETF choice in the nation for a diversified play on the still strong Israeli economy:
The iShares MSCI Israel Capped Investable Market ETF ( EIS ) is pretty much the only product from the ETF space that provides an opportunity for a pure play in the Israeli equity space. It tracks the MSCI Israel Capped Investable Market Index, which in turn tracks the performance of the Israeli equity markets. Although the equity ETF was launched in March of 2008, it has managed to amass $76.50 million in its asset base.
The product charges a net expense ratio of 59 basis points per annum and pays out 2.74% as yield. The EIS portfolio is composed of 70 stocks across various sectors.
The ETF has its assets spread across the entire spectrum of market capitalization with a particular bias towards large cap stocks. However, it has a relatively lower average daily volume of around 19,000 shares which give rise to relatively high bid-ask spreads.
EIS has a large exposure in the Financial (28%) and Healthcare (22%) sector as these two sectors taken together, account for around 50% of its total assets.
Among other segments, it also places its bets heavily in the Material (15%) as well as Information Technology (14.78%) sectors with double digit exposure. Industrials (6.17%), Consumer Staples (2.94%), Energy (2.30%) and Consumer Discretionary (1.32%) are the other sectors in which the ETF has a weighting in (read Forget the BRIC ETFs, Focus on the PICKs ). Read More>>