Solactive AG and BlueStar Indexes have joined efforts to launch the Solactive-BlueStar Israel Economic Exposure Index (IEEI) family which comprises a pair of indexes designed to reflect the segmentation of the Israeli economy between globally-oriented firms and companies primarily focused on serving the domestic economy.
The Solactive-BlueStar Israel Domestic Exposure Index (IDEI) and Solactive-BlueStar Israel Global Exposure Index (IGEI) provide investors with two distinct benchmarks for Israeli equities. These two indexes can be used as vital indicators of Israel's economic cycles and specific economic trends, as well as tools or vehicles to track the potential risk of geopolitical events in the volatile Middle East. Additionally, the new indexes provide insight into the different risk, reward, correlation, yield and other technical and fundamental characteristics of Israeli Global Equities representing Israel's domestic and global economies.
The new indexes are "very unique" because they highlight the fact that Israel has actually two separate economies: one represented by domestic companies which is quite strong and resilient but can more-impacted by the geopolitics of the region; and that represented by global Israeli firms which are not exposed to the regional events but derived the bulk of their revenues globally, according to Steven Schoenfeld, founder of BlueStar Indexes.
"The current focus at Bluestar is to develop a range of indexes for efficient exposure to Israeli assets but we have plans to expand our scope to other Eastern Mediterranean countries because we think investors are missing investment opportunities in the region," said Schoenfeld. "Israel graduated from being an emerging market in 2009 (by FTSE) and in 2010 (by MSCI) and since then has lost traction among international investors. Because of the turmoil in the region, investors tend to think that the Israel's economy is in trouble but in fact the opposite is the case. Israel is one of the best performing economies among developed countries, and has the strongest demographics of any developed economy."
Bluestar Global Investor's affiliate ITEQ ETF partners launched the BlueStar TA-Bigitech Israel Technology ETF on Nasdaq in November 2015, an exchange-traded fund (ETF) linked to the Tase-BlueStar Israel Global Technology Index which tracks the 65 major Israeli technology companies with shares listed on Tase, the London Stock Exchange, Nasdaq, New York Stock Exchange and the Singapore Exchange.
"All our indexes are investable and screen for minimum size and liquidity," said Schoenfeld. "We believe these new two indexes could appeal to structured products firms, whether banks in Europe, the US or Israel, as they offer the possibility to be deployed individually or in combination, and they will fit different risk-return strategies with the potential to outperform the local TA-25 & TA-100 indexes."
According to Schoenfeld, the reason to partner with Solactive is two-fold. First, Solactive is the calculating agent of one of our indexes and we think very highly of them; and second, Solactive is partnered with FactSet on their GeoRev database of which allows us comprehensively analyze the source of companies' revenues. "This data, combined with BlueStar's expertise in Israeli companies provided the perfect match for an index family which was then launched after many months of research and rigorous back-testing," said Schoenfeld.
Israel's exchange traded products market now has assets of over US$40bn, and the US independent index provider believes it is a market with significant potential for structured products and ETNs/ETFs, said Schoenfeld. "We believe the indexes will also appeal to international investors seeking exposure to the existing domestic indexes (TA-25 /TA-100) because they recognise they don't provide exposure to the whole Israeli market as those indexes don't include Israeli companies listed in London, in the US, or other markets (there's one Israeli company listed in Singapore)," said Schoenfeld. "By having a global approach we can show and track the true size of Israel's capital markets."
BlueStar manages broad indexes covering the whole Israeli market (the BlueStar Israel Global Index - BIGI - and the TASE-BlueStar Israel Global Technology Index - TA-BIGITech). "The fact that the two largest Israel structured products providers have launched Tase-listed ETNs tracking our flagship indexes - BIGI by Psagot and TA-BIGITech by KSM/Excellence - is an endorsement of BlueStar's 'broad, deep & complete' approach to benchmarking Israeli equities and we hope the two new Israel Economic Exposure Indexes will be also used in the structured products market, as we are offering precise access to the two distinct drivers of the Israeli economy," said Schoenfeld.
The firm has already approached some of the leading investment banks in the structured notes market and providers of exchange-traded products (ETPs) in the US and a number of them including an Israeli bank in the US have shown interest. "Now that the indexes have been officially launched, we plan to promote them in the main European markets because we believe they can offer unique value to investors," said Schoenfeld.
The Solactive-BlueStar Israel Economic Exposure Indexes utilize the constituents of its parent index, the BlueStar Israel Global Index - Total Investable Market (BIGI-TIM) as the basis for its selection universe. BIGI-TIM includes all Israeli and Israel-linked companies, regardless of listing venue, with a float-adjusted market capitalization of at least US$50m equivalent and six-month average daily value traded of at least US$200,000 equivalent. The economic exposure indexes further refines the investable universe to companies that have trailing twelve month revenue of greater than US$2m equivalent at the rebalance selection date. The index methodologies define a company's economic exposure by the percentage of its revenues derived from the target economic zone - revenue from within Israel for IDEI and revenue from outside of Israel for IGEI. In addition, the index methodology provides for several diversification and liquidity limitations.
Steffen Scheuble, CEO at Solactive, said in a statement that the new pair of indexes will "enable investors to focus on the two distinct parts of the Israeli economy, and make appropriate investment decisions based on the trends from these two benchmarks".
"Through anticipated products that will track these indexes, investors will be able to participate in the positive influence of both factors driving the Israeli equity markets," said Scheuble.
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Israel Market Review - Q1 2016