Niche ETF offers access to Israeli technology
Steven Schoenfeld (pictured) is Founder and CIO of BlueStar, the USD100 million index provider firm behind the BlueStar TA-BIGITech Israel Technology ETF (ITEQ). Joshua Kaplan is BlueStar’s Director of Reseach.
BlueStar offers seven indexes, six equity and one fixed income, all focused on Israeli markets and Israeli companies listed globally. The firm’s flagship ETF is focussed on Israeli technology.
BlueStar partnered with ETF Managers Group (ETFMG), a registered investment adviser and ETF issuer that provides the infrastructure and management to index firms and asset managers to launch ETFs.
In the macro perspective, Schoenfeld explains that Israel used to be an emerging market and graduated to developed market status within the FTSE world index in 2009 and within MSCI in 2010. “When it was in the emerging market universe together with Southeast Asian, Eastern European and Latin American countries, it was around 3.5 per cent of the emerging market universe,” Schoenfeld explains.
It graduated in 2010 and now sits alongside the developed markets of the US, Japan and the UK. “Even though having graduated is a good thing, it’s like playing against teams of the top economies,” Schoenfeld says.
“Israel is one of the best performing economies in the world but its market capitalisation is small relative to the US, the UK and Japan. Its weight in the major FTSE and MSCI global indexes is only 50 basis points or less. It went from being a medium sized fish in a small lake to being a tiny fish in a giant ocean.”
“We are very optimistic about ITEQ’s potential,” states Joshua Kaplan, BlueStar’s Director of Research; “A key thesis underlying the case for investing in Israel and Israeli technology, is that despite the excellent performance of the economy and its companies, the market is being ignored for structural reasons.”
Schoenfeld adds that the aim of BlueStar is to raise the visibility of Israel as an investment story to general investors. “Israeli companies don’t always make it to the big technology indexes,” Schoenfeld says, “and yet you have Israeli companies that are world leaders in any numbers of fields. There is a compelling set of companies with promising prospects being ignored by investors.”
Domestic Israeli institutional investors are also under-invested in Israeli technology stocks because most of these tech companies are listed outside of Israel and local benchmarks tend to include only stocks listed on the Tel Aviv Stock Exchange.
The troubled history of Israel has encouraged the growth of technology, Schoenfeld says. “Israel excels in technology because of a confluence of several ingredients, like a good recipe. A combination of strong educational institutions and a military sector that uses technology exist. Israel needed to fight in many wars and innovate with military technology – leading to the development of unmanned vehicles, cyber security, world-class surface-to-air missiles, sophisticated radars systems - a lot of these applications developed in the military and can be adapted to civilian use.”
Ituran provides location and control technology for stolen vehicles but its roots lie in tracking a shot down pilot or stolen cars. “This is being used in Brazil and Russia and now Ituran’s technology is being used for tracking delivery vans and truck fleets,” Schoenfeld explains.
Schoenfeld believes that after the US’s Silicon Valley, Israel has the most robust ecosystem for technology in the world. “Israel has a small domestic market so our entrepreneurs have to think global and unlike in the US and the UK, where students go directly to university, in Israel, both men and women go into the army straight after high school and this teaches strong leadership and improvisational skills. It is deeply embedded into Israeli culture that failure is acceptable, and that you simply try again and again.”
BlueStar’s TA-BIGITech Israel Global Technology Index was launched in 2013 and was partnered with the Tel Aviv Stock Exchange in 2015 - the first time the exchange partnered with another party for an Israeli index. The ITEQ Israel Tech ETF was launched in November 2015. The fund is up 16.65 per cent YTD through April 26th.