Studying the Israel ETF's Post-Conflict Performances
Israel may be a developed economy, but it is surrounded by emerging and frontier markets. More importantly, Israel sits in a politically volatile corner of the globe. Investors evaluating Israel must consider geography and the country's tenuous relationships with many of its neighbors and other nations that are not too far away.
There are a few Israeli equities that plenty of U.S. investors are familiar with. Teva Pharmaceuticals (NASDAQ: TEVA), SodaStream International (NASDAQ: SODA) and Cellcom Israel (NYSE: CEL) to name a few. However, there is just one ETF devoted to America's most dependable ally in a region with precious few: The iShares MSCI Israel Capped Investable Market Index Fund (NYSE: EIS).
Home to 70 stocks and $71.8 million in assets under management, EIS is now four-and-a-half years old. That means the ETF's trading history is long enough to get a sense for how the fund trades following Middle East conflict, an instructive endeavor to be sure.
Lebanon 2008 Talk about baptism by fire. Not only did EIS debut several months before the darkest days of the global financial crisis, but the fund was not even two months old when an 18-month long feud in nearby Lebanon reached the breaking point. Fighting between the government and Hezbollah lasted for two weeks and led to dozens of casualties.
Remarkably, EIS traded higher during the Lebanon conflict. When the fighting ended, EIS was trading just below $56. A week later it was flirting with $59. The good times ended there as EIS's share price would be cut in half by late November 2008. It should be noted that in 2008 Israel was still classified as an emerging market and that may have contributed to the ETF's slide.
Yemen's al-Qaeda Crackdown Yemen is more than 1,300 miles away from Israel, but the former is home to ongoing conflicts that cannot be glossed over. In early 2010, the Yemeni government joined forces with the U.S. in effort to rid the country of al-Qaeda loyalists after nation played unfortunate host to the 2000 bombing of the USS Cole, among other terrorist acts.
Since there was a revolution in Yemen last year and fighting started again earlier this year, it is hard to pinpoint a date when fighting there stopped. This much is clear: EIS was trading around $54 in late January 2010 and was below $50 by the time the first battle of Lawdar ended in late August 2010.
Egypt 2011 Tel Aviv is just 250 miles from Cairo, so it is not surprising that civil and political unrest in Egypt can adversely impact Israeli equities. That is exactly during the Arab Spring of 2011. The anti-Mubarak movement started to gain steam in February 2011. From February 18 through the end of the year, EIS plunged 30.5 percent.
Over the same time, the Market Vectors Egypt ETF (NYSE: EPGT) tumbled 49.1 percent. Neither ETF has gotten back to its pre-Arab Spring highs, but it is worth nothing EGPT is one of the top-performing non-leveraged ETFs in 2012.
Syria 2012 At 133 miles away, Tel Aviv is closer to Damascus, Syria than it is to Cairo and that proximity can be a thorny issue to say the least. The country is in the midst of an uprising that began in March 2011 and by some estimates has claimed more than 20,000 lives.
The summer months were particularly bloody as more than 2,900 deaths were reported in June and nearly 2,800 in July. EIS traded lower for most of June and July, but the ETF found a bottom in July and has proceeded to traded slightly higher from there.
For more on Middle East news and how it impacts ETFs, click here.
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