Israel, More Than a Start-Up Nation
March 14, 2022
Read Time 4 MIN
Israel offers unique investment opportunities as it continues to show positive socio-economic, geopolitical and technological trends.
Investors seeking to build a comprehensive global equity portfolio should consider Israel exposure. Israel is poised to benefit from current socio-economic, geopolitical and technological trends that could be a positive tailwind for Israel equities.
A member of Organization for Economic Co-operation and Development (OECD), Israel received developed market status by leading benchmark providers almost a decade ago. Israel went from being a medium-sized market within emerging markets (EM) indexes to a tiny weight in the global developed market indexes. Moreover, the reclassification from MSCI left Israel equities underweighted in passive and benchmarked developed market portfolios.
Israel has one of the youngest populations amongst developed market countries. In 2020, 28% of population was under the age of 15 vs. 16% in developed market countries,1 whereas 60% of the country’s population falls within the working age range.2 Israel also compares favorably in terms of elderly population against OECD member countries. Only 12% of Israel’s population falls in the elderly3 bucket vs. an average of 18% for OECD. Younger individuals generally tend to be more optimistic about their financial future and are willing to spend more of their disposable income. This per capita spending drives up consumption growth and gross domestic product (GDP). Israel also has one of the most educated populations among developed countries. As of 2020, 47% of Israelis aged 25-34 have completed tertiary education compared to the OECD member average of 45%.4 This large and growing group of educated young people may provide long-term support for Israel’s economic success going forward.
Israel’s diplomatic links with the UAE have been on the mend since 2020 and trade between the two countries reached $700 million, bolstered by cooperation in aviation and finance sectors.5 The two countries are also collaborating to explore opportunities to grow capital markets in UAE and Israel. Additionally, there are positive developments in Israel’s diplomatic ties with Turkey in terms of cooperation on energy resources and discussion of transporting Israeli natural gas to Europe. This is imperative now, given the sanctions the West is imposing on Russia and the increasing likelihood that Russia may retaliate by cutting off its gas supply to Europe.6
Israel’s private technology sector has continued to receive interest from global venture capital and private equity investors. The sector received about $26 billion in venture capital dollars in 2021, almost double the amount raised in 2020, and about a quarter of the funding received by Europe as a whole.7
Israel High-Tech Investments 2015 - 2020
Source: Israel Innovation Authority (adapted from IVC data).
Exits by founders soared on the back of capital inflows into the private markets. Last year saw 238 high-tech exits, which amounted to $22 billion in deals. Similarly in 2021, IPOs saw explosive growth relative to 2020, as 121 Israeli companies with a total valuation of more than $87 billion went public across the globe, versus 27 companies in the prior year.8 Some of the bumper IPOs of the year included:
Israel IPOs 2021
|Company||Debut Market Capitalization ($Bil)||Business Summary||Current Weight in MVIS BIGI Index (%)*|
|Playtika||13.0||pure-play video gaming company||0.83|
|IronSource||11.1||a SaaS platform||0.94|
Source: MVIS. *weight as of 2/28/2022. Past performance is not indicative of future results.
MVIS Bluestar Israel Global Index added exposure to some of these companies in 2021. Israel appears to offer a robust pipeline of multi-billion dollar IPOs that will be a boon to its capital markets.9 The foreign direct investment into Israel has helped strengthen the Shekel, further boosting the macro-economic outlook of the country.
Shekel 2010 – 2022
Source: Bloomberg. Past performance is not indicative of future results.
When thinking about how to access the opportunity provided by Israeli companies, a diversified approach utilized by the VanEck Israel ETF (ISRA) may provide investors the opportunity to capitalize on Israel’s favorable macroeconomic, geopolitical and technological trends. ISRA’s exposure not only provides a technology and growth tilt, but also fundamental exposure to the country’s broad sectors. On a 10-year look-back as of February 28, 2022, ISRA provides lower downside risk along with favorable returns at an attractive valuation relative to technology heavy and other EM indexes.
Technology and EM Indexes Performance
|Indexes||Return||Std. Dev||Sharpe Ratio||Max Drawdown||Price to Earnings Ratio*|
|MVIS Bluestar Israel Global Index||8.60||15.34||0.58||-21.29||14.41|
|MVIS Bluestar Israel Global Tech Index||11.32||17.68||0.66||-23.37||24.95|
Time period 3/1/2012 – 2/28/2022.
*Price to earnings ratio as of 2/28/2022.
Source: Morningstar Past performance is not indicative of future results.
MVIS BlueStar Israel Global Index
Source: MVIS. As of 2/28/2022.
1 As defined by MSCI Indices excluding Israel and using China as proxy for Hong Kong.
2 As defined by OECD, working age population is those aged between 15 to 64.
3 As defined by OECD, elderly population consists of people aged over 65.
8 MVIS Israel Equity Outlook Q1 2022.
9 MVIS Israel Equity Outlook Q1 2022.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
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