Van Eck, via its ETF brand Market Vectors, has developed quite the name for itself in the ETF world. The company has become famous for its wide range of income, hard asset, and international products which are often the only ways that U.S. investors can easily tap into certain markets.
While this is the case for some markets like Egypt (EGPT) and Vietnam (VNM), the firm isn’t opposed to be the second company in a particular niche either. This has been the case for its Colombia ETF (COLX) and, as suggested by a recent filing, the Israeli market as well.
Ina recent release to the SEC the company detailed plans to launch a fund targeting stocks that focus in on the Middle East nation of Israel. While this was just an initial filing and some details were not available, we have highlighted a few of the key points below for this potential entrant into one of the only developed markets in the region:
Israel ETF in Focus
The company revealed plans for a Market Vectors Israel ETF trading under the ticker symbol of ISRA. The fund will track the BlueStar Israel Global Index and will charge investors 59 basis points a year in fees for this exposure (read Israel ETF Investing 101).
This benchmark had roughly 94 securities in its portfolio, with an average market capitalization of $1.9 billion. However, the index doesn’t just include firms based in Israel, as it also looks at tax status, location of revenues and employees—among other factors—in order to determine ‘Israeli companies’.
Additionally, no single stock will make up more than 12.5% of assets, so there will be some diversification from a security perspective. This is particularly true considering that the index will also not let the stocks that have 5% or greater weights make up more than half the portfolio.
How would it fit in a portfolio?
This ETF, if ever approved, could offer up solid exposure to an often overlooked developed market. Israel often moves somewhat independently of other industrialized countries, so it could be an interesting play from a diversification perspective.
The nation is also a prime play for those seeking technological prowess and medical expertise as well. Israel is home to ‘Silicon Wadi’ a big tech zone outside of Tel Aviv, while generic pharma giant Teva is also based in Israel (read Middle East ETFs: More Different Than You Might Think).
Obviously, there are some serious geopolitical issues present in Israel. Tensions are ever high with many of its neighbors, so that is a factor that definitely needs to be considered as well.
The biggest competitor in the space is the iShares MSCI Israel Capped ETF (EIS). This fund holds a basket of Israeli securities, charging investors 60 basis points a year in fees for this service.
The fund, however, hasn’t exactly seen a huge burst in interest as the ETF has less than $90 million in total assets. To me this suggests that investors haven’t really embraced Israeli ETF investing and that a second fund in the space might be a tough sell (read Frontier Market ETF Investing 101).
Still, ISRA could make a name for itself thanks to its capped strategy. EIS has over one-fifth of its assets in TEVA alone, so this may be putting off some investors from diving into the space.
So while IRSA might have a tough fight on its hands, it could be able to differentiate itself enough to accumulate a decent following. The fund, if ever approved, looks to be a bit pricier than its main competitor though, but the drastically different exposure profile could be enough to make a difference in this overlooked corner of the investing world.
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