How To Access Ex-U.S. Technology Growth With ETFs
When investors think of technology exchange-traded funds, they typically think of U.S.-focused ETFs. If their thoughts wander to foreign funds, it is usually an Asia ETF of some variety that has robust technology exposure.
However, globetrotting investors in search of the combination of developed markets and ample tech exposure should also look to Israel and the Market Vectors Israel ETF (Market Vectors ETF Trust (NYSE: ISRA)).
ISRA, which is nearly two and a half years old, tracks the BlueStar Israel Global Index (BLSNTR), a benchmark “comprised of equity securities, which may include depositary receipts, of publicly traded companies that are generally considered by the Index Provider to be Israeli companies,” according to Market Vectors.
Israel And The Market
Israel is a scant a percentage of major developed indexes and, broadly speaking, when U.S. investors acknowledge Israeli stocks and ETFs, it is due to the healthcare sector. ISRA is reflective of the dominant perch held by healthcare stocks in Israeli equity markets, as the sector accounts for 31.7 percent of the ETF's weight. However, that trails ISRA's 32.9 percent tech allocation.
ISRA’s Tech Footprint
ISRA's significant tech footprint is reflective of Israel's growing footprint on the global tech stage. After all, this is a country that has been previously referred to as “startup nation.”
“What is often not visible, however, to either the casual observer or even the seasoned investor, is how essential the role of Israeli technology companies has become. This is because most Israeli technology companies are not user-facing like the largest global technology companies, but rather are key partners, technology developers and providers to those larger companies,” said BlueStar in a new research note.
Peer In The Space
ISRA's older rival, the iShares MSCI Israel Capped Investable Market Index Fund(NYSE: EIS), allocates just 8.5 percent of its weight to tech stocks.
When there are obvious divergences between the two ETFs' performances, the situation is usually easily explained. When EIS is outperforming, it is probably because Israeli banks are doing the same. EIS devotes 38.7 percent of its weight to financial services stocks, more than double ISRA's weight to that sector.
When ISRA outshines its rival, it is probably because Israeli tech and healthcare stocks are performing well. ISRA's combined weight to those sectors is 64.6 percent compared to 30.6 percent for EIS.
Israel and ISRA are leveraged to another booming tech theme: cybersecurity. In fact, ISRA has at least three holdings in common with the wildly popular PureFunds ISE Cyber Security ETF (NYSE: HACK).
“BlueStar’s analysis clearly illustrates Israel’s global technology footprint; Israeli companies either individually or collectively account for a large portion of their respective technology sector’s global market share, are key players in a wide range of technology sub-sectors or are leaders in secular growth industries,” said BlueStar.
BlueStar recently created the TA-BIGI Tech Index to better define the Israeli tech universe. There is no word yet on whether that benchmark will be linked to an ETF.
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