Market Vectors, Van Eck Global’s exchange-traded fund unit, today is launching an equities ETF focused on Israel, taking on the only other fund targeting Israel through an index methodology that will make the new ETF more diversified than the pioneering iShares's fund "EIS."
The Market Vectors Israel ETF will trade under the symbol “ISRA” and will have a net annual expense ratio—including a fee waiver—of 0.59 percent, or $59 for each $10,000 invested, according to its registration statement. The fund will be based on an index created by BlueStar Indexes, a firm founded by longtime index industry figure Steven Schoenfeld.
ISRA will join the iShares MSCI Israel Capped Investable Market Index Fund (EIS), a five-year-old ETF that now has $77 million in assets. EIS has an annual expense ratio of around 0.60 percent, according to iShares’ website.
ISRA is designed to take on inherent weaknesses in EIS’ index methodology by including Israeli companies that are listed outside of Israel—a feature that avoids the top-heavy quality of the MSCI index methodology. No single holding of ISRA can be more than 12.5 percent of the portfolio; that’s half the 25 percent maximum of EIS, a feature that will make ISRA more diversified and less subject to single-security risk.
A Dynamic, If Dangerous, Neighborhood
While investing in Israel may give investors pause, the Middle Eastern country has long had a reputation of economic dynamism and capitalist success that belies the turmoil it sometimes finds itself embroiled in.
The fund’s latest prospectus took some of those concerns head-on in a section on unique risks the fund poses to investors.
“Israel’s relations with the Palestinian Authority and certain neighboring countries such as Lebanon, Syria and Iran, among others, have at times been strained due to territorial disputes, historical animosities or security concerns, which may cause uncertainty in the Israeli markets and adversely affect the overall economy, “ the prospectus said.
The filing also said that Israel’s economy depends on imports of certain key items, such as crude oil, coal, grains, raw materials and military equipment. Furthermore, Israel’s economy is heavily dependent upon trade relationships with key counterparties around the world.
“Any reduction in these trade flows may have an adverse impact on the fund’s investments,” the filing said.
ISRA’s index provider will consider factors such as domicile, country of company formation/founding, primary location of management, operations and/or research and development facilities, tax status, location of revenues and employees to determine whether a company will be included in the index.
The fund’s investments will include depositary receipts, and as of March 1, 2013, the index included 94 securities of companies with a market capitalization range of between approximately $133 million and $35.1 billion, and an average market capitalization of $1.9 billion. By comparison, EIS, the iShares fund, currently has 62 holdings.
At least 80 percent of ISRA’s assets will normally be invested in the index—a policy that is nonfundamental and may be changed without shareholder approval upon 60 days’ prior written notice to shareholders, according to the filing.
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