Israel's economy is racing. Analysts predict annual GDP growth for each of the next two years to be 3.5 percent. Israel, home to such global companies as cybersecurity firm Check Point Software and computing hardware business Mellanox Technologies, has its booming high-tech sector to thank.
A surging economy makes investing in Israeli companies a smart bet. But despite Israeli companies' impressive pedigree, they remain underrepresented in many of the portfolios of both American and Israeli investors, according to Steven Schoenfeld, founder and chief investment officer of New York-based BlueStar Global Investors LLC.
"If you look at tech broadly, Israel just doesn't appear on the radar, and investors haven't focused on it," Schoenfeld said.
There are 95 Israeli companies trading on the Nasdaq today, but the companies Schoenfeld is talking about are smaller, mid-cap names in Israeli tech that don't trade on overseas indexes. To bring broader exposure of Israel-based tech companies to both U.S. and Israeli investors, Schoenfeld's firm launched an ETF that focuses on Israel-based technology companies in 2015. It's named the BlueStar TA-BIGITech Israel Technology ETF (ITEQ), which tracks BlueStar's Israel Global Technology Index.
ITEQ chugged along in its first year of full operations, 2016, but with an annual return of under 4 percent, it attracted no more than $5 million. Yet over the last year, the ETF has grown. Up more than 27 percent last year, ITEQ now has $35 million in assets. That's still a blip on the landscape of an ETF industry that had inflows of $500 billion in 2017, but it does mark a seven-fold increase for ITEQ.
That same investment growth is expected for Israeli private and institutional investors as well. The Israel Securities Authority has picked BlueStar's Israel Global Technology Index to serve as the benchmark for four new high-tech funds expected to begin trading this year on the Tel Aviv Stock Exchange. These four funds, meant for private investors and institutional investors, such as Israeli pension funds, will invest in both publicly traded Israeli technology stocks and early stage private companies.
"The launch of these funds will change the way that both Israeli institutional investors and individual investors view and access Israeli technology investments," says Schoenfeld. "And at least $330 million will soon be allocating to Israeli technology stocks listed worldwide."