good article on Israeli companies. No mention of jcda, but provides good general press on IT companys in Israel. Does mention DOX but not ECTX (two other Israeli companies worth holding)
Tiny Amidex makes big gains in Israel
By Craig Tolliver, CBS.MarketWatch.com
Last Update: 6:37 PM ET Jun 20, 2000
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NEW YORK (CBS.MW) -- The 1-year-old Amidex35 is a tiny fund
investing in Israel, a tiny country -- but it's posting some pretty big gains.
As of Monday, the $20 million fund is up 31 percent since the beginning
of the year.
Given the current political climate, investing in Israel might give some
investors pause, but this nation is home to some exciting stocks in the
technology and business-to-business arenas.
Wired magazine recently listed Israel as one of the 20 most influential
high-tech hubs in the world. The magazine also pegged Israel as one of
the fastest-growing high-tech centers, boasting a $99 billion economy and
managing $1 billion in venture capital last year.
First developed as an affinity fund for Jewish-American investors, the
Amidex35 is proving to be a real winner for others as well. Fully 65
percent of the fund?s current investors are technology seekers and
international diversification seekers, with no real "warm spot" for Israel,
claims Boaz Rahav, the fund's portfolio manager.
Ranking the fund against popular categories, it's easy to see why. As of
Friday, Amidex35 (AMDEX) ranked fifth out of 200 technology funds
tracked by Bloomberg since the beginning of the year, according to
Rahav, and first ahead of 211 emerging market funds. The fund also
placed No. 5 against a universe of 1,723 growth funds and 52 out of all
11,149 mutual funds available in the U.S. during the period, Rahav said.
The fund is ahead of the Lipper Science & Technology Index, which has
only mustered an 11 percent gain since the beginning of the year. The
small fund is also trumping the Lipper Emerging Markets and International
Fund indexes, which are both off 10 percent and 3.9 percent,
respectively, as of Monday. Over the last 12 months, Amidex35 is up 82
percent.
The fund mimics the Amidex Index, created by the fund's adviser,
TransNations Investments, and is composed of old economy blue chips
on the Tel Aviv exchange and technology firms found in both the Nasdaq
and the NYSE.
"Israel is the first in the world, after the U.S. and Canada of course, in the
number of traded securities on Wall Street. Which is pretty impressive for
a country the size of Conneticut," Rahav said.
Currently, 18 of the 35 companies in the fund are found on Wall Street --
15 of which trade on the Nasdaq exchange.
Diversification within the Tel Aviv exchange boded
well for the fund this year. The tech laden Nasdaq
Composite is off 21 percent since hitting its high on
March 10. By comparison, Amidex35 only
declined by 14 percent over the period thanks to a
cushion from the mostly financial services
companies found on the Tel Aviv exchange. The
Tel Aviv component of the fund is up 12 percent
since March 10.
"Technology is very important. It's definitely
something we like. But the fact that we have
traditional blue-chip traded stocks on the Tel Aviv
side proved as a balance or a brake when the
Nasdaq was dropping,? Rahav said. ?Inflation went
down from 440 percent in the mid-eighties to 1.3
percent in 1999. In light of this, the blue-chip,
economy oriented companies are doing great.?
Minimum initial investment is $2,500 for the
no-load fund, which carries a total expense ratio of
1.95 percent. Rahav, who last served as chief
economist for the Government of Israel?s Ministry
of Finance in New York, defended the high
expense ratio in an interview with CBS MarketWatch.
CBSMW: Isn't a 1.95 expense ratio a little high for an index fund?
Boaz Rahav: Absolutely not. To compare the Amidex to a Vanguard fund
or an S&P 500 fund would be somewhat misleading.
Though we index, a large portion of the portfolio is being traded in Israel.
It seems like an easy thing to do, but it's not the case for an American
open-end SEC regulated mutual fund. We are the first to trade Israeli
stocks on a regular basis. What the SEC required us to do is build a chain
of custodian banks that will hold securities for an American mutual fund.
That chain tends to be extremely expensive. There are two banks that can
serve as a 1940 Act custodian bank. When you are the first open-end
American mutual fund client, your negotiation position is zero and it turned
out to be that custody charges in Israel are about 10 times higher than
custody charges in Japan.
CBSMW: Could you tell us a little bit about the genesis of the fund?
Boaz Rahav: We wanted to introduce a vehicle that would allow the
average investor to gain exposure to Israel and really to consider Israel
stock, or an Israel mutual fund, as a valid portion of his investment
portfolio.
We knew that we would face some concerns, some skepticism about
seeing Israel as a valid investment opportunity. Our response was to
introduce the most simple, easy to understand, transparent vehicle that will
allow exposure in Israeli stocks. That's how the index idea started.
We looked at the existing Israeli benchmark indexes at the time, 1998,
and the local benchmarks in Israel, the TA25 and the TA100, were great
benchmarks for those Israeli stocks that trade in Israel.
It's not well known, but there is a huge universe of Israeli stocks that trade
outside of Israel. Actually, more than 50 percent of the Israeli equity
market today is being traded outside of Israel. To try and create an Israel
index and overlook the Israeli companies on Wall Street would miss all of
the exciting IPO, technology, B2B companies -- and you would just be
looking at the traditional blue chip kind of stocks that trade in Tel Aviv.
So we decided that our Israel index would cover both Israeli companies
on the Tel Aviv stock exchange and Israeli stocks traded on Wall Street.
That was our schtick.
CBSMW: So how is the index composed, what is the selection criteria?
Rahav: Amidex35 stands for American Israeli Index. Thirty-five is the
number of participating companies.
What we do is rank the entire Israeli universe (according to market cap)
from one to about 800 today. About 670 trade in Tel Aviv, about 130
trade on Wall Street.
CBSMW: Why did you limit yourself to 35 companies?
Rahav: We ran numbers back to the beginning of the '90s and we were
looking for the smallest number of companies that would provide investors
with an exposure greater than 60 percent of the combined universe. It
seems that 35 companies provides decent exposure to the overall
economy over time.
CBSMW: Will you expand this fund or create new funds that might
capture the Israeli companies found on the European exchanges?
Rahav: When we first started, only the Tel Aviv and Wall Street markets
were relevent. In the last 12 months, we've seen a flow of Israeli
companies to European markets.
An example is a company called BATM Advanced Communications of
Israel on the London Stock Exchange?s Alternative Investment Market.
It?s a pure technology company that grew in size to over $2 billion.
Now we need to decide whether the Amidex 35 will serve as an umbrella,
not only for Israel on Wall Street but also Israel in Europe or to introduce
a separate vehicle.
CBSMW: What sort of companies are we finding on the American
exchanges?
Rahav: We are holding a great basket of B2B companies. Companies
such as Amdocs (DOX: news, msgs) (traded on the NYSE) is a world
leader in software billing and client maintenance around the world.
Amdocs today is the industry standard for any large telephone company
and it services the 75 largest telephone companies in the world, including
AT&T, Australian Telecom, Sprint PCS, or any other company that you
can think of. Amdocs has a market cap of over $15 billion today.
Comverse (CMVT: news, msgs), a Nasdaq traded company, is an S&P
500 company and a Nasdaq 100 company. These are not small potatoes.
The average company in the index is more than $4 billion.
These companies, even though they are the cutting-edge technology
companies with a huge Nasdaq exposure, suffered less than other
companies. These are already technology blue chips. As funny as it
sounds, two year-old IPOs. These companies, even though they?re purely
technology, generate revenues and profits, which is not easy to find in a
technology play. Definitely not in the B2B.
Comverse has revenue of over $1 billion and net profit of over $56 million
for the first quarter of 2000. Not easy to find on the Nasdaq.
CBSMW: While virus alerts plague many computer owners, this has
provided good business for Israeli security software interests.
Rahav: Absolutely.
Checkpoint (CHKP: news, msgs) is an amazing company. Like many
other companies in Israel, you can look at it as a military spinoff. A few
guys sitting somewhere in a military camp saying, "The things that I'm
doing currently with a lieutenant?s rank on my shoulder I can see one
million and one civilian products."
Throughout the 90s, many of the guys that left the army rushed to the
start-up field, opened their own business and became market leaders in
whatever they were doing. Israeli cutting-edge defense know-how is
being transformed to these great B2B products by these brilliant young
officers.
CBSMW: Checkpoint isn't the only example of this.
Rahav: Gilat Satellite (GILTF: news, msgs) is another great example. It?s
definitely a world leader in remote telecommunication access through
satellite. It's so cutting-edge in its innovation that Microsoft has been trying
to buy them for years now. Gilat is definitely military know-how being
shifted into civilian products.
BackWeb (BWEB: news, msgs) is a three-year-old company started by
guys from the army, from an intelligence unit, that had all the push
technology know-how and turned it into a product that Schwab is using
today for its Intranet and Internet facilitation.
CBSMW: What do you say to investors who are concerned about the
current political environment in Israel?
Prime Minister Barak just lost the backing of Israel?s third largest political
movement, Shas. Peace negotiations with Syria and the Palestinian
Authority are in flux. The recent withdrawal from Lebanon has been
likened to the fall of Saigon.
Rahav: We backtested the political, even the regional situation, in the
Middle East and in Israel on the stock market and on the inflow of foreign
money into Israel. We found that not only is there no correlation, but there
might be a reverse correlation.
In 1997 it wasn't an extremely good year for Israel in terms of the
economy, its relationship with its neighbors, even with the popularity
among its European and American power partners. (But) it was a record
year for foreign money flowing into Israel. About $3 billion, or $2.7 billion
at the time, investing in new plants. Intel (INTC: news, msgs) announced
then its $1.6 billion investment in Israel.
Investors are looking into the future. Today's news is already history.
Investors are pretty confident that Israel is here to stay. I'm not sure if that
was the case a few decades ago. But today, investors are looking at Israel
the same way that they are looking at any other country.
If you look at the state of Israel's credit ranking by Moody's and S&P, it
increased from BB in the 80s to A- today. Moody's just announced that a
further upgrade is expected. |
