Investing In Israel
Mon, 11/14/2011

Warren E. Buffett is the second-richest person in the country (after Microsoft’s Bill Gates), and when he purchased an Israeli-based stock not long ago, investors throughout the world sat up and took notice. It was Buffett’s first major investment outside the U.S. Up to that point, he would always say that he could always find good stocks just in this country.

Then the Sage of Omaha’s company, Berkshire Hathaway, paid $4 billion for an 80 percent share of Iscar Metalworking, and he said at the time that he was looking for other low-priced jewels.

What drew him to Israel, Buffett said, was its brainpower.

“If you’re going to the Middle East to look for oil, you can skip Israel. If you’re looking for brains, look no further. 

“Israel has shown that it has a disproportionate amount of brains and energy.”

For other investors looking to invest in Israel, but with perhaps not quite $4 billion to invest, there are a variety of choices.

Israel’s economy actually has been doing well compared to those of many other countries, in part because the country didn’t have a credit bubble.

Andy Brown of Aberdeen Asset Management, which runs First Israel Fund, grants that inflation is something of a worry, but he argues that Israel’s “long-term fundamentals are strong. Israel has a young, growing, healthy population.”

Brown believes that a good time to invest in Israel is when political unrest has made stock prices a bargain.

Stock Index Fund

The Amidex35 Israel Mutual Fund consists of the 35 largest Israeli companies. It’s a unique combination of stocks that trades on either the U.S. or Tel Aviv — on the Tel Aviv Stock Exchange, the New York Stock Exchange, or Nasdaq (where smaller stocks trade).

Why 35? Because 35 stocks have been found to provide 60 percent of the return of all Israeli stocks.

Why Amidex? It’s a combination of a word for “friend” and “index.”

The fund is no-load (no sales charge), but if you sell within a year, there’s a redemption fee.

Minimum first investment is $500, with $250 for follow-ups; for automatic investments, only $100.

For more information, phone 888-876-3566.  

Amidex is setting up other index funds, such as the Cancer Innovation & Healthcare Fund.

Index funds over the years have done better than 70 percent or so of actively managed funds. In his book, “What Works on Wall Street” (fourth edition, 2012), James P. O’Shaughnessy claims this is because index funds don’t change their strategy. But John Bogle, who started the Vanguard Group, attributes the success of index funds to their low expenses.

A Close-End Fund

Unlike Amidex35, the First Israel Fund (ISL) doesn’t issue new shares. A limited number of shares trade among buyers and sellers. It’s a “closed-end” fund, not an “open-end” fund, like Amidex35.

The advantage of this is that if shareholders decide to sell out, en masse, the fund doesn’t have to raise cash to meet redemptions by selling its holdings, perhaps at hurtfully low prices.

The fund is not an index fund. The managers buy and sell Israeli stocks. It’s a concentrated fund, with 75 percent of its assets in its top-ten holdings. The fund is overweight in information technology, particularly the stock Checkpoint Software. It is underweight cyclical sectors, like energy. 

Like other closed-end funds, First Israel trades at a discount to its underlying value — right now, around 12 percent. Of course, shareholders may wind up selling their holdings are the same or a larger discount.

The fund trades on the New York Stock Exchange. For more information, phone 866-839-5205.

First Israel Fund was launched in 1990 by Credit Suisse Asset Management, and it’s headquartered in Philadelphia.

An Exchange-Traded Fund

iShares Israel is an Exchange Traded Fund — an index fund that trades as a stock. ETFs traditionally have very low expenses. In the case of this fund, 0.61 percent.

The fund follows an index called the Morgan Stanley Capped Investable Market Index. It was launched in March of 2008.

iShares Israel holds 83 stocks, but is tilted toward Teva Pharmaceuticals, which has 23 percent of its assets.

For more information, call 800-474-2737.