Today ARK Invest is rolling out an ETF that will focus on Israel-linked companies that are involved in disruptive technology. The ARK Israel Innovative Technology ETF (IZRL) will track an index disseminated by Solactive that currently covers 43 securities.
The fund comes with an expense ratio of 0.49% and lists on the Cboe exchange. ETF.com is owned by Cboe Global Markets.
“We didn’t set out to do a country-specific fund that happened to be focused on innovation. We set out to do an innovation fund and happened to focus on Israel,” said Tom Staudt, ARK’s director of product development and interim COO.
Top Innovative Country
ARK’s investment theses are based on the concept of disruptive innovation, and Israel and Israeli-based companies were continuously showing up in the firm’s research, Staudt notes. “As we evaluated the market, what we recognized was that Israel was regularly being named a top innovative country.”
IZRL’s underlying index draws its components from the health technology, communications, technology services, electronic technology, consumer services and producer manufacturing sectors to focus on companies with operations that are causing disruptive innovation in genomics, health care, biotechnology, industrials, manufacturing, the internet and information technology, the prospectus says.
Eligible components must be incorporated or domiciled in Israel. Within the index, they are equally weighted. The index rebalances quarterly, according to the document.
Solactive’s website lists the companies with the five largest weightings as Suny Cellular Communication, Bezeq, Ceragon Networks, RADA Electronic Industries and Compugen. Interestingly, none of these is included in the top 10 companies of any of the other ETFs covering Israel.
The largest Israel ETF is the iShares MSCI Israel Capped ETF (EIS), with $92 million in assets under management. However, the BlueStar TA-BIGITech Israel Technology ETF (ITEQ), with $29 million in assets, is probably the most comparable to IZRL. It holds a basket of 70 stocks drawn from the health care, biotech, life sciences, aerospace, clean energy and agricultural technology spaces, and charges an expense ratio of 0.75%. It also takes a much broader definition of what qualifies as an Israeli company.
“[IZRL] has very differentiated exposure than the broad-based Israeli indices. Anybody who has current exposure to Israel in their portfolio can consider this because it has very little overlap, and goes much farther down the market-cap spectrum into the truly innovative companies, and focuses on those innovative sectors and industries of the economy,” Staudt said of ARK’s fund.
“We noticed a unique market inefficiency that in effect prevents investors from having proper exposure to the opportunity set,” he added.
Indeed, the country is an interesting case. It was reclassified as a developed market by MSCI in 2010, and it went from being a sizable part of the MSCI Emerging Markets Index to less than 1% of the popular MSCI EAFE Index.
According to Staudt, when it left MSCI’s emerging markets index, it saw its representation shrink from a bucket of roughly 15 companies to just two to four companies in the developed-market benchmark. Further, it’s not included in Asia or Europe indexes for the most part, and there are very few Europe/Middle East/Asia funds listed in the U.S.
Contact Heather Bell at [email protected]