Israeli Equities: 2014 Performance Review
2014 Performance Review
SCHOENFELD: 2014 was a record year for Israel. Israeli tech companies had $15 billion in exits, which was more than double the equivalent figure for 2013. We also saw a record number of IPOs of Israeli companies into the global capital markets. This included world-leading companies such as Wix.com, Mobileye, CyberArk, and ReWalk. Israel's pipeline for IPOs continues to be robust, and the BlueStar Israel Global Index, which is tracked by the ISRA ETF, expanded from about 104 stocks to 119 stocks at the end of the year.
2014 was a relatively good year for Israeli stocks. In local terms, Israeli stocks ended the year at record levels. Because of the weakening shekel, however, foreign investors realized a flat return essentially. What was very impressive about 2014 is that, despite some small shocks at the beginning of the war with Hamas over Gaza, the economy and the market recovered very quickly and BIGI [BlueStar Israel Global Index]index ended the year close to where it started.
The information technology sector or what Israelis call high-tech is the most robust sector of the Israeli economy. Israeli companies are at the leading edge of almost every new innovation, whether it's biotech, cyber technology, big data, etc. You see this through the startup ecosystem and you also see this through the IPOs. The BIGI index expanded from just over 100 to 119 during 2014. We expect more IPOs in this sector going forward.
The financial services sector in Israel is quite stable and even almost boring in contrast to many other regions of the world. The banks and the insurance companies have a steady source of profit and benefit from Israel's favorable demographics. The investment management industry has some challenges but as Israeli investors invest more abroad, it is expected to rebound. Additionally, the insurance industry in Israel is very stable and very profitable.
The telecom sector in Israel is quite dynamic. There have been several waves of regulatory reform. The three largest telecom companies, Bezeq, Cellcom, and Partner, have been hit because they've had new competition from startups such as Rami Levy and Golan Telecom. This is good for consumers but has challenged the telecom sector. We expect these trends to continue in 2015.
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Important disclosure for Market Vectors Israel ETF investors: The Fund is subject to elevated risks, including those associated with investments in foreign securities, in particular Israeli issuers, which include, among others, greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. In addition, companies with medium and small capitalizations are subject to elevated risks, which include, among others, greater volatility, lower trading volume, and less liquidity than larger companies. Finally, the Fund is non-diversified and concentrated, which may subject it to greater risk than a more diversified investment.
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