Israel: Stock Market Returns Win on Risk-Adjusted Return

by ETF Base on February 26, 2012

There was an interesting article in BusinessWeek this weekend highlighting how Israel’s risk-adjusted return over the past 10 years bested all other developed markets.  Overall, the Israel market as defined by the Tel Aviv 25 returned 161% including dividends vs. the “lost decade” in much of the rest of the developed world markets.  Rounding out the top 3 for risk-adjust return (returns after adjusting out volatility) were Israel at 7.6% annualized, Hong Kong at 6.7% and Norway at 6.5%.

You may not be aware of many household and tech names that hail from Israel.  Teva Pharmaceuticals, Checkpoint Security and Nice Systems are all relatively well-known names.  There are two ways to play Israel outside of owning individual stocks – the Israel ETF (IES) or the mutual fund AMIDEX35 Israel (AMDEX).  Israel is often viewed as a high risk investment since there are literally thousands of missiles pointed at it and right now, tensions are escalating with Iran.


My Thoughts on Owning Israel


  • I view Israel as somewhat of a binary trade.  There is always a risk premium which artificially suppresses the valuations of great companies.  If the worst does end up occurring in the region, you can be sure Israeli stocks will crater.  However, these companies are fully aware of this risk and have multiple locations and backup plans.  That might actually be a great time to buy…if there’s an onslaught of missiles unleashed in the region.
  • The yield on the index is quite nice at 3.49% versus 1.88% on the S&P500. That’s worth a look in and of itself for a developed market.  If searching for much higher yields outside the US, check out International Bond ETFs.
  • While the 10 year performance is incredible versus the S&P500 (and I checked it out myself in Google Finance using AMDEX), the past couple years underperformed.  I’m not quite sure what accounted for the stellar performance earlier in the decade versus more recently.  I assume the concentration of so few stocks has something to do with it.  Just a few winners and losers in any given year can greatly influence an index of 25 or 35 stocks compared to a broad market index of 500 for SPY for instance.
  • While Israel is considered a developed market, stocks sometimes find themselves within the Emerging Markets space primarily because of the region.


Disclosure: No holdings in either ETF or Mutual Fund covered in this article.

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