U.S. Jewish Groups Courted by Index Guru for Israeli ETFGabrielle Coppola
Steven Schoenfeld staked his career on a single belief in 2010: there was latent demand in the U.S. Jewish community to invest in Israeli stocks.
That year, the Wall Street veteran founded a company that would create an index that includes Israeli shares traded both in Tel Aviv and abroad. Schoenfeld’s BlueStar Israel Global Index includes Caesarstone Sdot Yam Ltd. and Taro Pharmaceutical Industries Ltd., which don’t trade in Israel and are up more than 90 percent over the past year. Van Eck Associates started in June 2013 an exchange-traded fund tracking his index, under the ticker ISRA.
Schoenfeld, who has created indexes for the World Bank, Barclays Plc and Northern Trust Corp., is seeking to raise $1 billion from the $60 billion he estimates is held by Jewish federations, endowments and charities in the U.S. and Canada. He says the investment will benefit Israel’s stock exchange and economy. So far, Schoenfeld has raised $36.7 million, including funds from the Greater Miami Jewish Federation and the Chicago federation. The gauge is up 26 percent in the past year, beating the Standard & Poor’s 500 Index’s 22 percent gain.
“It was shocking for us as Jewish federations that we didn’t benefit from that,” Alon Ozer, who oversees a $200 million endowment as chief investment officer of the Miami-based group, said in a telephone interview. “If we can make money, then obviously the political side is a no brainer.”
Israel’s TA-25 index added 0.3 percent in Tel Aviv, leaving the gauge 11 percent higher in the past 12 months.
International investors began to neglect Israeli stocks after May 2010, when MSCI Inc. shifted the country into its index of developed-market equities and out of its emerging-market gauge. Trading on the Tel Aviv Stock Exchange plunged 44 percent in the first two years after the reclassification, according to Bank of Israel data.
The change reduced Israel’s weighting in the developed-market gauge, known as the MSCI World Index, to 0.2 percent. While in MSCI’s emerging-markets index, Israel accounted for 2.7 percent of that benchmark.
“We were systematically underweighting Israel in our equity portfolios and we wanted to address that,” David Brief, the chief investment officer at Jewish Federation of Metropolitan Chicago, which invested $10 million in the BlueStar Index-linked ETF last year, said by phone Feb. 27. “Emerging-market managers over time sold off what they had, and the developed-market managers didn’t really pick up the slack.”
A self-described “index nerd,” Schoenfeld, 51, has been building equity gauges for decades. In the early 1990s, he helped put together an emerging-market benchmark for the World Bank’s International Finance Corp.
Schoenfeld’s BlueStar Israel Global Index has climbed 22 percent on average in the past five years, fueled by the expansion of Israel’s technology and energy industries. That compares with an average yearly gain of 13 percent for the MSCI All Country World Index and 16 percent for the S&P 500.
Stocks in Israel’s benchmark TA-25 Index have traded at an 11 percent discount to those in the The MSCI All Country World Index on average over the past five years. BlackRock Inc.’s iShares MSCI Israel Capped ETF gained 78 percent in that period while the Bloomberg Israel-US Index of the largest and most-traded Israeli companies in New York rose 65 percent.
It was during his 4 1/2 years at Northern Trust, where he managed $300 billion in assets, that Schoenfeld got a glimpse of the potential demand for Israeli stocks. Jewish federations were among the investors in the index-based and active funds he managed. Many of them were inquiring about Israel, he said.
“We had strong interest,” said Schoenfeld, a Brooklyn native and son of a Holocaust survivor. “So part of the light bulb that went off in my head was: there really is latent demand for this.”
Yaniv Pagot, the chief strategist at Ramat Gan, Israel-based Ayalon Group Ltd., which manages the equivalent of about $4 billion in assets, says he doubts Schoenfeld’s initiative will have much effect on Israel’s markets or its $258 billion economy. Even if Schoenfeld gets to his $1 billion goal, it’s not enough money to matter, Pagot said.
“It’s good for the morale of the Israeli people that they are not alone,” Pagot said in a telephone interview. “But it doesn’t have any influence on the market.”
Caesarstone, the Israeli maker of quartz countertops that is only traded on the Nasdaq, has rallied 165 percent in the past 12 months. Taro, the Israeli pharmaceutical company whose products include treatments for head lice and skin discoloration, jumped 91 percent.
While at least five companies have listed in New York over the past year, one had carried out its initial public offering in Tel Aviv, according to data compiled by Bloomberg.
Varonis Systems Inc., a security software designer founded by Israeli entrepreneurs, doubled on its first day of trading on Feb. 28. Wix.com Ltd., the Tel Aviv-based maker of online tools to create websites, climbed 63 percent since its IPO on Nov. 5.
Schoenfeld sees his fund as a way for investors to counter pressure from activists to blacklist Israeli businesses operating in the West Bank and east Jerusalem.
Dutch asset-manager PGGM, which oversees more than 150 billion euros ($208 billion), said in January it would no longer invest in Israel’s top five banks because of their financial operations in the settlements. Actress Scarlett Johansson publicly split from Oxfam International after the humanitarian group criticized her role as a spokeswoman for Lod, Israel-based SodaStream International Ltd., because of its plant in a settlement in the West Bank.
“One good way to respond to divestment is to invest,” Schoenfeld said. “The more capital there is both from Israel and abroad focused on Israeli equity, the more likely it is that Israeli companies will stay the course.”