3 Reasons Israel Is A Good Investment

July 18, 2014

Israel’s conflicts may have no end, but the country has become a cutting-edge economy with cutting-edge companies.

Scores of Palestinians are dead and Israel has launched a ground offensive into the neighboring Gaza strip to ferret out missile launch sites, but investors shouldn’t run for the hills given Israel’s unique place in the global economy as an engine of next-generation research and development.

It’s true that Israeli stocks have swooned in the past week as the Israeli Defense Forces (IDF) has dropped bombs on Gaza and as Hamas has launched dozens of missiles from Gaza against Israel. But Israeli equities have long been resilient and remain so even now.

Two exchange-traded funds canvassing Israel speak to the staying power of Israeli companies—the $134 million iShares MSCI Israel Capped ETF (EIS | C-46) and the $48 million Market Vectors Israel ETF (ISRA | C-32).

Both ETFs have fallen since the violence broke out, but they also began to retrace some of those losses even as the conflict was unfolding. Amazingly, they’re both about steady for the month of July and have risen by upward of 20 percent in the past year.

“Israel’s economic and social resilience is deeply rooted, but it remains impressive even to a frequent visitor like me,” Steven Schoenfeld told ETF.com. He is the head of BlueStar Global Investors, the firm that created the benchmark for ISRA, the Market Vectors security.

In broad terms, Israel is home to a vibrant tech sector—the chipmaker Intel has a huge facility in Israel—and to biotech firms like Teva Pharmaceuticals, the biggest holding in both EIS and ISRA. Israel is also a big innovator in drip irrigation, which is considered a crucial technology for an arid country like Israel, and for humans everywhere who are grappling with tightening water supplies.

ISRA_Vs_EIS_July_Returns

In a more immediate sense, Israelis and Israeli companies have adapted to the recurring conflicts with flexibility and a sort of can-do acceptance about being embroiled in ongoing conflicts with foes—like Hamas—that don’t recognize Israel’s right to exist.

“At the macro level, Israeli businesses and organizations plan for various contingencies, and are very good at improvising,” said Schoenfeld, who was in Israel at the time he answered ETF.com’s questions by email. “Some of it is simply a ‘because-we-have-no-choice’ approach—Israelis refuse to ‘give in’ to terror, or to the mightily scary geopolitical threats on their borders.”

Schoenfeld also said that because military service is obligatory for so many Israelis, citizens there have a high degree of trust in the safety measures instituted by the IDF.

While as many as 60,000 reservists called to duty represent a drag on the economy, the conflict so far has not proven to be lasting enough or severe enough to pose a deeper threat to the economy.

 

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