Josh Kaplan & Steven Schoenfeld: Israel Equity Market Outlook–May 2013 in Review & June 2013 Outlook
By Josh Kaplan & Steven Schoenfeld of BlueStar Global Investors LLC—June 5, 2013
This monthly column produced by BlueStar Global Investors discusses Israeli equities traded worldwide. The benchmark for our review is the BlueStar Israel Global Index (“BIGI”), which we believe represents the complete opportunity set of Israeli equity investments.
Israel has one of the most resilient economies in the world and its technology sector plays an integral part in the global technological revolution. Yet few are aware of the global footprint of Israel’s companies in other sectors, and fewer still know how to make their knowledge of the Israeli economy actionable. This column aims to help investors gain insight into the macro forces (including the geopolitical environment under which Israel’s economy operates) and the individual company investment opportunities that have contributed to global Israeli equities’ outperformance of U.S. equities by more than five-fold over the past two decades.
One key reason why the BlueStar Israel Global Index (BIGI) is more relevant to North American investors than the TA-100 or MSCI Israel indexes is that BIGI includes Israeli companies that are listed exclusively on exchanges outside of Israel – including NYSE, Nasdaq, and the London Stock Exchange – thus providing investors with a benchmark that is balanced across key sectors. In addition, BIGI limits the largest constituent member to a weight of 12.5% to attenuate the impact of any single stock in the index.
In this column, we discuss BIGI’s performance over the previous month, including the largest percentage gainers and losers, sector performance, technical analysis, and key industry-specific and policy developments. We also highlight key domestic and international economic and geopolitical events. Readers are encouraged to assess the trends and ideas presented in this column and take the time to research specific investment opportunities further.
June 5, 2013
Israeli Global Equities continued to consolidate in May; following a strong start to the month, Israeli stocks finished the month flat to slightly higher. Unfortunately, attention has been diverted from the generally positive earnings season which reached its peak in May and helped the technology sector to outperform. Each of the risk factors we’ve discussed in recent months contributed to keeping Israeli Global Equities in a holding pattern in April and May.
First, the volatile movement in Japanese stocks have increased the volatility in other global equity markets. In addition the Federal Reserve’s discussion of its quantitative easing policy, which suggested a slowing of its bond purchases, has added to the downside risks in global equity markets.
Second, domestic monetary, fiscal, and regulatory policy issues have taken center stage. The Bank of Israel cut its policy interest rate twice in May and began to intervene in the foreign exchange market more directly. The Israeli government stated its intention to meet its budget deficit targets in 2013 and 2014 with a mix of spending cuts and higher taxes. The notorious corporate pyramids are now directly under attack. And the issues of low trading volumes and “over regulation” of publicly traded entities on the TASE are moving into the spotlight: on the last U.S. trading day of the month (the TASE was closed, which is largely why the TA-100 outperformed MSCI Israel and BIGI by such a wide margin in May), Mellanox Technologies announced it will delist its shares from the TASE. Each of these developments–especially the attack on corporate pyramids and the Mellanox delisting—has begun to ripple through the Israeli Equity market.
On the other hand, a generally positive earnings season, a lift in share prices and outlooks from some key technology companies, pro-growth monetary policy, relatively low unemployment, the emerging energy industry, prudent fiscal policy, better-than–OECD-average GDP growth, and our technical analysis of the BlueStar Israel Global Index all support a continuation of Israeli Global Equities’ rebound, which began back in late 2012. We are still quite bullish on Israeli Global Equities in the medium to long term, yet a bit more cautiously so than last month in the short term.
Finally, the Syrian Civil War is becoming messier as fighting has spilled over into Lebanese territory. Hezbollah, the terrorist organization, which controls the South of Lebanon (including the border with Israel) and effectively controls the Lebanese government, is now openly fighting with and supporting the Assad regime. For now, Israel is uninvolved in the conflict except to ensure that the most powerful weapons in Syria do not fall into the hands of Hezbollah. Israel is of course also maintaining heightened vigilance on its northern borders.
BIGI (BlueStar Israel Global Index) Performance Versus the TA-100 and S&P 500 Indices since January 2010
Israeli Global Equities–as measured by BIGI–underperformed U.S. equities but outperformed other developed market and emerging market equities in May 2013. The performance differential between Israeli and U.S. equities is continuing to widen as American stocks had another strongly-positive month. The relative underperformance by Israeli Global Equities began in mid-2012. It was triggered by increased rhetoric about an Israeli attack on Iranian nuclear facilities and exacerbated by other geopolitical events and the Israeli operation in Gaza in late 2012. However, the relative underperformance of the technology sector (including Israeli, U.S., and other technology stocks) as well as interest-rate differentials between the U.S. and Israel has also played a role in the relative underperformance of Israeli Global Equities. Despite these factors, we still expect Israeli Global Equities to catch-up to other equity markets as Israel’s strong banking systems, prudent policy measures, strong and stable currency, and dynamic mix of sectors (with the highest weighting in the technology sector) continue to drive growth in Israel’s economy. The broad Israeli Global Equity universe–which includes companies listed in Tel Aviv, the U.S., and elsewhere–provides investors with exposure to Israel’s economy as well as exposure to several vibrant and globally-oriented economic sectors in which Israeli companies are leaders.
May 2013 Sector Performance and Equity Winners and Losers
Major news in Israeli Global Equities this month came on the last day of May when Mellanox Technologies (MLNX:NASDAQ, TASE) announced its decision to de-list its shares from the Tel Aviv Stock Exchange and to have them remain listed for trading on NASDAQ only. As announced by the company, “Mellanox is delisting its shares from the TASE in order to be subject to one set of listing regulations instead of two, to allow greater management focus on the company’s business, and to reduce cost of operations.” Just as Mellanox shares began rebounding after a massive selloff in the second half of 2012, shares are again falling but, this time, they are doing so mostly for structural rather than fundamental reasons, as passive holders tracking Israel’s TA-25 and TA-100 indexes will be forced to sell MLNX by its mid-June exit from those local benchmarks.We assume that the company’s access to capital and cost of capital will not be dramatically affected by this move as the TASE is less liquid and efficient than the NASDAQ exchange. However, Mellanox is currently one of the highest-weighted components of the above-mentioned TASE Indexes as well as the MSCI and FTSE country indexes for Israel used by global institutions. Investors who gain access to Israeli equities via index-based strategies will be forced to sell their shares regardless of whether they believe Mellanox’s shares are over- or undervalued.
Therefore, we believe that, at some point, analysts and investors who know the company well–and perhaps the company itself–will be willing to buy up the shares liquidated by index-based portfolio managers if values fall sufficiently. Of course, operational risks will continue to exist and the company’s ability to produce earnings growth could still be compromised by other forces. We will discuss the implications of the Mellanox delisting for the broader market in the fundamental outlook section, in which we will also explain why investors should consider using a broader Israeli Global Benchmark such as the BlueStar Israel Global Index.
Another index-related drag on Israeli Global Equities is Perrigo Co.’s (PRGO: NASDAQ) change of listing venue to the NYSE; it will be removed from the Nasdaq-100 index.
Despite the late-May retreat in shares of Mellanox, the Technology sector outpaced all other sectors by a wide margin in May. This outcome was in line with our assessment throughout the second quarter that the Technology sector would be among the leading sectors going into and through the second half of 2013. Among the best performers in the Technology sector were EZchip Semiconductor (EZCH: TASE, NASDAQ); Orbotech (ORBK:NASDAQ); CEVA (CEVA: NASDAQ); Allot Communications (ALLT:TASE,NASDAQ); and VeriFone Systems (PAY:NYSE). We continue to follow developments that support our thesis that technology stocks will be among the leaders both in U.S. and Israeli equities in the quarters to come. This trend is not yet confirmed, but we picked up hints that it was underway last month, and May’s technology stock price action was constructive to this view.
In April, as we noted then, earnings reports and outlooks from Orbotech and other “behind-the-scenes” technology companies, big-data and cloud-related companies, and global technology giants such as Microsoft and Intel, were quite positive. This combined with relatively suppressed technology stock prices during the broader market rally over the last year or so could enable our thesis about Israel’s technology sector to play out. In May, two of Israel’s largest technology sector components, NICE Systems (NICE:TASE, NASDAQ) and EZchip, announced earnings. NICE systems experienced top and bottom line growth and EZchip reported lower profits on higher revenues. One of the major bearish cases in this market is that, though there has been significant earnings growth and growth in corporate productivity, the missing piece for a continued rally is top-line revenue growth.
Last month, it looked as though the rebound in Israel’s Telecommunications stocks would continue. However, we were wrong in our assessment, as evidenced by the dismal Israeli telecommunications earnings season. Shares of Bezeq (BEZQ:TASE), Partner (PTNR:TASE,NASDAQ), and Cellcom (CEL:TASE,NYSE) were all sharply lower in May after reporting plunging revenues amidst a continuously highly competitive landscape.
CaesarStone (CSTE: NASDAQ) was the top performing Israeli Global Equity in May. Last month we stated: “For the time being, we stick to the view that April’s decline was caused by structural market forces and that it doesn’t signal a change in the underlying business or dilution of shares (we are cautiously bullish on CaesarStone shares and looking for higher earnings to justify the stock’s trading multiple).” In early May, CaesarStone reiterated full year revenue and EBITDA guidance. The company’s fastest growing market is the U.S. and the U.S. is in the midst of a housing recovery. In addition, CaesarStone announced that it has signed an agreement to be the exclusive supplier of non-laminate countertops to IKEA U.S. Our view from last month holds.
Two Consumer stocks, SodaStream International (SODA:NASDAQ) and Strauss Group (STRS:TASE), were among the top ten performing Israeli Global Equities in May. We continue to believe in the strength of the SodaStream product and the company’s future. On June 3, Barclay’s announced that it increased SodaStream’s price target to $100/share. Strauss Group’s net profit rose 57% in Q1 2013 on a year-over-year basis. The company’s international activities provided the greatest strength but its domestic business continued to rise as well. We are beginning to explore the merits of a Consumer Discretionary and Consumer Services overweight in light of rising consumer confidence in some of Israel’s largest export markets as well as strong local economic growth and a strong local currency.
The sharp appreciation of the Israeli Shekel has been partly attributable to speculation that the commencement of natural gas deliveries to Israel and the future of the Oil & Gas sector will cause Balance of Payments surpluses. This and other analysis in our autumn 2011 essay on the effect of Israel’s natural gas industry on the rest of the economy and region– “The Economics and Politics of Israel’s Offshore Energy Discoveries”— remains valid, and we encourage readers to revisit that article by clicking on the link above. Energy independence alone will be a boon for the Israeli economy and Israeli Global Equities. Anything above and beyond energy independence, in the way of exports, would be icing on the cake and further propel Israeli economic growth. Unfortunately, we are still waiting for the government to take a decisively pro-export policy stance.
As we have stated repeatedly: “holding an overweight position in Israeli energy equities and LPs will aid in insulating investors from lower-than-expected economic growth in Israel [outside the oil & gas sector].” Additionally, though this sector currently holds a small weight in the BlueStar Israel Global Index, the weight will likely grow over the years and decades to come; overweighting smaller growth sectors, we believe, is a prudent long term investment strategy. It is certainly not expected that this group of stocks will rise in a straight line. There will be times when the group is over-valued or when certain risks are not discounted fully, but we are viewing this sector as a buy-and-hold long term investment.”
Oil & Gas sector highlights in May include:
- Leviathan proven gas reserves raised from 18 to 18.9 trillion cubic feet; contingent reserve estimates raised from 21 to 24 trillion cubic feet
- Shemen Oil sold part of its stake in the Yam 3 well to Caspian Drilling of Azerbaijan
- Turkish officials are supposedly moving in favor of extensive cooperation with Israel and Cyprus on energy and other constructive economic fronts
- Delek Group CEO says that gas exports could generate $100 billion in tax revenue for the Treasury and the Israeli economy over the next two decades
- Noble Energy declared a gas discovery within the Alon C license of approximately 1.8 trillion cubic feet
Market Trends – Technical Analysis and Market Fundamentals
Technical Analysis of the Israeli Market
The consolidation of BIGI during April continued in May. This section contains new three and six year charts; other than that, there is little new technical analysis to add. Our three-year chart (below) includes 30 and 100 day simple moving averages and the six year chart includes 50 and 200 day simple moving averages. The 100-day moving average in the three-year chart seems to be quite significant as indicated on the chart below. We believe that, so long as that average is held and the 30 day moving average does not decisively cross the 100 day moving average, the chance of a breakout to the upside following this period of consolidation is greater than the chance of a breakout to the downside. On the six-year chart, it seems that the 50-day moving average has gotten too far ahead of the 200 day moving average; it is perfectly normal to see consolidation or even a pull-back in the short term. We repeat the following from last month:
After breaking important trend lines in November (during Israeli Global Equities’ rebound from the sharp drop at the beginning of Operation Pillar of Defense), the BlueStar Israel Global Index (BIGI) consolidated in December and resumed its upward movement in January and February. The market selloff during Operation Pillar of Defense to the 200 index level for BIGI confirmed that this is a significant medium and long term level of support for the index. On the three-year chart below we see that BIGI is now consolidating, within a trading range, following the rebound from mid-2012 just described. The range is depicted by the dotted green and red lines and for now, the range is occurring within the context of an upward trend. We see a greater probability of the index breaking above the upper end of this range in a meaningful way than breaking down below the lower end of this range. If this occurs, we see the index rallying strongly to the 250-260 level and then consolidating before a move higher to perhaps 275 or 300 by the end of the year.
At this point, we are comfortable saying that 229-230 has been confirmed as support at the lower end of the above-described range. This area will become an even more significant support level if it is tested and holds for a third time. If the lower end of the range is broken we would look for the lower band of the upward channel, just above the 220 level, to be the first level of support and a soft stop- loss level, followed by the 200 level being our hard “stop-loss” level.
The longer-term outlook for Israeli equities continues to be firmly bullish as the index has re-entered the channel connecting the 2008/2009 lows, as illustrated in the BIGI five-year chart, which spans the entire 2008-2009 global financial crisis. The longer-term outlook will become even more bullish if Israeli Global Equities decisively breaks through the upper band of this channel which has crept up to the 240 level. If this breakout occurs, we see the projected upside potential of the index to be at the 300 level by the end of 2013, though most likely following a break at the resistance level of 250-260 (depicted by the solid green line on the 6-year chart below) and a consolidation at the 2011 high of 275.
Risk management parameters for those with a shorter time horizon have changed slightly since early spring, and should include a “soft” stop-loss activated with a daily close below the lower band of the consolidation zone on the three-year chart at 230 and “hard” stop-losses with weekly closes below 220 and 200. For the longer-term investor, if these levels are breached and then confirmed with a weekly close of BIGI below 195, the longer-term outlook will shift dramatically, and any rallies should be sold. A breach of 195 would increase the likelihood that the spring 2011 peaks represent the ‘head’ of a massive ‘head and shoulders’ pattern which would project a major decline to around 135, just above the autumn 2008/March 2009 lows. However, as these stop-loss levels have so far held, the close of BIGI decisively above the 220 level has confirmed that this major multi-year support level has held, and is most likely a base for a sustained rally. If the latter scenario develops, we would expect medium and long-term targets as high as the 275 and 300 levels, respectively.
The main event in Israeli capital markets in May came on the final U.S. trading day of the month when Mellanox Technologies announced its decision to delist its shares from the TASE and focus solely on its NASDAQ listing. In this month’s Fundamental Outlook section, we pay extra attention to the TASE and Global Index Categorization. We will delve deeper into the issue of corporate pyramids in the Israeli Economy in next month’s column.
The TASE and Global Index Categorization
In March, the Tel Aviv Stock Exchange extended its trading hours to 5:30 p.m. Israeli time with the hope that the extended trading hours would lead to higher volumes on the Tel Aviv Stock Exchange (as more trading hours per day would overlap with markets in different time zones around the world). In April, global index provider MSCI announced that it will decide whether to include Israel in its European regional indexes by end-June. The lack of liquidity on the TASE is a source of frustration for Israel’s financial industry and regulators, and is problematic for Israeli companies. As exemplified by Mellanox’s decision to delist from the TASE, the additional overhead and oversight associated with having shares listed on the TASE is not worth the burden for many companies. As we discuss in the following section, new laws restricting corporate pyramids may result in more de-listings in the future.
Israel held a relatively higher weight in global benchmarks like MSCI and FTSE when it was categorized as an emerging market index. When it became a developed market country, its relative weighting decreased as it became part of much larger ‘families’ of country indexes, such as MSCI EAFE, FTSE World (developed), etc. This resulted in net capital outflows and reduced volumes on the TASE. Should Israel become part of a European Index, we would expect some net capital inflows and somewhat higher volume to result, although not at the ‘panacea’ level that has been touted by exchange officials and the brokerage community in Israel. This is because, even if Israel is included in MSCI Europe, its weight in benchmarks used by North American and Asian investors will remain exactly where it is.
Portfolio managers who do desire to make the proper allocation to Israeli stocks in the context of a developed market equity portfolio have limited choices. Most Israeli equity indexes, including the TA-25, TA-100, and MSCI Israel Indexes, all have a high weighting in TEVA and a relatively high concentration in the top ten constituents. If a portfolio manager wants to make the proper Israel allocation, he can do so by simply buying shares of Teva, Israel Chemicals, Bank Hapoalim, Bank Leumi, Bezeq, NICE Systems, and Mellanox. Now that Mellanox will no longer qualify for inclusion in most Israel equity indexes, the options for investing in an Israel index-tracking fund are even less enticing and less cost-effective; why pay several basis points in management fees when you can simply buy and hold the shares of just a handful of the biggest companies and achieve acceptable correlation to the benchmark? The mere fact that Mellanox will no longer be included in the most prominent Israeli Indexes makes the company no less Israeli and no less linked to the Israeli economy; the consequence of the delisting is frustrating to many in the Israeli finance industry for this reason. It weakens the efficacy of an index-based approach, which helps direct hundreds of millions of dollars in funds to the TASE.
A potential solution (of which we are obviously strong proponents for), is the adaption of the BlueStar Israel Global Index. BIGI takes into account the fundamental flaws in existing Israeli equity indexes and includes all eligible Israeli companies regardless of their listing venue. Now, if you think that the exclusion of Mellanox (market capitalization just over $2 billion) in TA-Indexes and the MSCI Israel Index is a big deal, try multiplying that by a factor greater of ten: Yes, the combined market capitalization of Israeli companies excluded from other Israeli equity indexes due to their listing venue totals over $30 billion. The BlueStar Israel Global Index also fairly represents Israel’s world-renowned technology sector, as many Israeli companies list their shares solely on the NASDAQ exchange or the NYSE (not the TASE). We believe that the Mellanox delisting highlights the need for a “global” approach for benchmarking Israeli stocks and/or an index-based Israel equity allocation.
Regulation and Corporate Pyramids
Corporate pyramids create huge moral hazards in decision-making by executives at some of Israel’s largest financial and non-financial institutions. In April, the Prime Minister’s cabinet approved the “Concentration in the Economy Law.” This law addresses three main issues: the overall weight of concentration nationwide and competitiveness in privatizations made by the government; restrictions on business pyramids; and separation of financial and non-financial holdings. The goal of increasing competition in Israel is good for consumers because it leads to economic growth as it lowers barriers to entry for new innovative businesses. As barriers to entry are broken, the cost of living goes down. In May, the Knesset Finance Committee approved a clause in the Concentration in the Economy bill limiting business pyramids to just two levels. Though the long term effects of this legislation are pro-market and on the whole positive, there will be temporary growing-pains, especially for some of the largest holding companies like Israel Corp., Delek Group, and IDB Holding Corp. Additionally, the new laws could result in further delistings from the TASE.
In May, the Syrian Civil war spilled over into Lebanon as Hezbollah and Syrian rebels clashed there. There have been many worrying rumors that Russia will be selling advanced anti-aircraft systems and fighter jets to the Assad regime, which could compromise the ease with which Israel could block weapons transfers to Hezbollah. Iran is gearing up for Presidential elections: there is little hope that a less anti-Israel regime will come to power as more moderate candidates have been barred from campaigning. Also, the Egyptian Army is increasing its operations and presence in the Sinai.
The Jerusalem municipality and the State of Israel approved building plans for both Palestinian and Jewish homes in the West Bank and East Jerusalem vicinity. Unknown Palestinian groups fired rockets at an Israeli observation point in the Golan. Also in May, groups from a range of the political spectrum in Turkey began protesting against certain government policies including a ban on the sale of alcohol – we don’t expect any direct impact on Israel from this, but any instability in Turkey could slow the gradual normalization of Israel-Turkish relations
The greatest geopolitical threats to Israeli Global Equities come from a potential of spillover from Syria into the Golan and from an emboldened Hezbollah attacking Israel in the Golan, upper Galilee, Haifa, or other areas in the North. Until now, there has been no fighting on the ground in Israel. Until ground fighting occurs, we need not increase the degree to which these threats enter into the investment decision-making process.
Economic and Fiscal Outlook
Israel’s GDP rose by an annualized 2.8% in Q1 2013, up from 2.6% in Q4 2012. Private consumption rose by an annualized 5.6% in the first quarter and consumption on durable goods rose by an annualized 14%, including a 64% jump in expenditure on cars. However, business product growth slowed to an annualized 2% in Q1 2013 from 3.4% in Q4 2012. With economic activity indexes still in expansion mode, the strong increase in durable goods expenditures and consumer expenditures proves two things: first, the rise in the Shekel, though hurting exporters, is helping to increase living standards for Israelis; second, even though government expenditure is set to be repressed, the Israeli consumer (and their consumer confidence) is poised to fill in that gap. Increased expenditure on durable goods is typically viewed as a positive indicator for economic growth.
The Bank of Israel made two cuts to its policy interest rate in May, resulting in a total 50 bp decrease to 1.25%. Reasons for the interest rate cuts were continued appreciation of the shekel, which takes into account the start of natural gas production from the Tamar Site, and interest rate reductions by many of the leading economies’ central banks (including Japan, European Central Bank, and the U.S. Federal Reserve). In addition, inflation is muted in Israel and, though home prices continue to rise, the mortgage market seems to be cooling down: housing demand fell by 15% in April on a sequential basis and new home purchases fell by 10%. There needs to be a greater supply of housing in Israel to meet the ever growing demand: we believe that real estate and construction stocks are likely to do well, though we prefer derivative plays.
The appreciation of the Shekel seems to be relentless. The Bank of Israel is now directly intervening in the foreign exchange market. It is buying foreign currencies and selling shekels to grease the wheels of economic expansion in Israel on the current account side while simultaneously lowering interest rates to deal with pressure from the capital account. The rise in the Shekel, though a positive sign for the strength of the economy and wealth of Israelis, is making life very hard for Israel’s exporters, which were the key contributor to Israel’s better-than-OECD-average GDP growth over the past decade or so. The Israel Manufacturers Association said that 48% of exporters are reporting lower profits, according to a May 7th Globes’ article.
In May, the Prime Minister’s cabinet approved a deficit target of 4.65% of GDP in 2013 and 3% in 2014. The budget deficit targets are nearly double what they were around a year ago, which means the Ministry of Finance is conceding to slower revenue growth and government expenditures that are greater than desired. In order to meet even these higher targets, the government is implementing spending cuts and revenue-increasing programs. The Treasury is planning a 1.5% income tax hike across all tax brackets and the VAT is set to rise another 100 bps to 18%. The corporate tax rate will rise to 26%, though many of Israel’s largest companies pay an effective tax rate much lower than that as a result of the law for encouragement of capital investments. Other taxes include taxes on luxury items and reduction in child allowances.
Contractive fiscal policy is never fun or easy in the short term but we believe that it is the responsible course to take and the medium and long term economic picture for Israel will be brighter because of it. The greatest direct risk to Israeli Global Equities would be a sudden change in the Law for the Encouragement of Capital Investments. Companies like Teva, Intel Israel, and Checkpoint pay only a 3.3% effective corporate tax rate in Israel by investing in R&D, employing Israelis outside of the main cities, and reinvesting capital into the company. A sudden change in the corporate tax environment in Israel would erode corporate profits and discourage risk-taking and capital expenditure.
Overall, we remain quite bullish on Israeli Global Equities in the medium and long term timeframe, although we are less certain about short-term volatility. We have not been discouraged to see Israeli Global Equities consolidating or pulling back in April and May. We believe the upside potential from these levels outweighs the downside risks, and retaining or opportunistically adding to an Israeli equity overweight during consolidation or on sharp pullbacks would be prudent.
Positive sector-driven, geopolitical, and macroeconomic developments, along with our technical analysis view of the global Israeli equity market, lead us to remain bullish on global Israeli equities in the medium-long term. We see a positive risk-reward relationship despite the ever-present geopolitical currents in the Middle East.
Editor’s Note: Steven Schoenfeld, co-author of this article and the Founder and Chief Investment Officer of BlueStar Global Investors LLC, is also the Founder and Publisher of IsraelStrategist.com. He is the Editor of Active Index Investing (Wiley Finance 2004/Toyo-Keizai 2006/China Press 2009 – www.ActiveIndexInvesting.com ). Josh Kaplan is a Research Associate at BlueStar Global Investors LLC, and a Contributor to IsraelStrategist.com