Israel ETFs Take Hit in Wake of War

A slew of top Israel-focused ETFs have sharply declined in the wake of attacks from the Hamas militant group.  

Of the top four exchange-traded funds with a total of $364 million under management, each one has declined since the attacks. The largest, the $130 million iShares MSCI Israel ETF (EIS) declined 7% on Oct. 9, before recovering about 2% by midday Oct. 10. The $92 million ARK Israel Innovative Technology ETF (IZRL) dropped about 5% Oct. 9, while the BlueStar Israel Technology ETF (ITEQ) dropped nearly 3%. The VanEck Israel ETF (ISRA) fell nearly 6%.  

Financial markets around the world were shocked by the surprise attack on the country, as militants attacked the country from air, land and sea. Israel’s death toll rose above 1,000 on Oct 10, while more than 830 Palestinians have died in Israeli counterattacks, according to NBC.  

“We anticipate continued volatility in Israeli equities in the coming weeks, especially those companies with heavy exposure to the Israel’s domestic economy,” Steven Schoenfeld, CEO of MarketVector Indexes and creator of the BlueStar Israel Tech ETF (ITEQ), said.   

“We believe that Israeli technology companies, which have mostly global exposure and have proven their resilience in operating during turbulent times, are likely to outperform locally oriented Israeli companies during this period of war and regional tensions,” he added.

Israeli ETFs Were Down Before

The Israeli sector funds were already suffering from poor performance and outflows this summer before the conflict began due to political infighting and a market downturn. Year to date, the iShares MSCI Israel ETF is down over 9%. The funds suffered nearly $47 million in outflows this year after widespread protests broke out in the nation in response to the country’s proposed judicial reforms that would have limited the power of the supreme court.

While the impact on the economy has thus far been limited to the natural gas and Israeli companies, the conflict could escalate, seeping into global markets and causing an economic tailspin.  

Israel has dominated the tech and defense sectors, especially in the realm of cybersecurity. As many tech workers depart to fight in the army, the workforce staffing some of the nation’s largest tech companies will be affected.  

“It's a very different scenario where reserves are being mobilized. You have a lot of young, smart, entrepreneurial people who are in the Israeli tech industry who are likely to be mobilized,” Schoenfeld said, noting that some firms could lose 20% to 30% of their workforces.  

Contact Lucy Brewster at [email protected].