Is The Israel ETF Back On Track? - ETF News And Commentary
09 April 2012 - 1:34PM
Zacks
The nation of Israel has been under the microscope over the past
few months as tensions continue to build between the country and
Iran. Many analysts believe that Israel will not tolerate Iran
possessing a nuclear weapon and that the small country will move to
bomb Iranian facilities in short order.
While speculation over a skirmish between the two heated rivals
continues to build and scare off some investors, the fact remains
that only words have been exchanged so far. In essence, some are
beginning to wonder if a more peaceful solution can be reached or
if Israel can somehow learn to live with a nuclear armed Iran at
its doorstep.
Although both situations seem unlikely, analysts must also
remember the political trends that could heavily impact the
developments in the region as well. Israel is scheduled to hold
elections in October 2013 while the U.S. has its Presidential
election later this year. Given that Israel probably needs U.S.
support for such a strike, it appears as though any confrontation
will likely be postponed until 2013 at the earliest (see Three ETFs
With Incredible Diversification).
Since we can possibly rule out a military action by Israel in
the short term, it could be worthwhile for investors to consider
making a tactical allocation to the nation for the rest of the
year. This can easily be done via a popular ETF tracking the
country’s market, the MSCI Israel Capped Investable Market
Index Fund (EIS).
This ETF seeks investment results that correspond to the
performance of the MSCI Israel Capped Investable Market Index, a
broad benchmark of Israeli equity returns. Currently, the fund
charges investors 59 basis points a year and holds 77 securities in
its basket (see Five Cheaper ETFs You Probably Overlooked).
So far in 2012, the Israel ETF has added about 9.5%,
underperforming the S&P 500 in the time period. This has
largely been due to worries over tensions with Iran as the real
divergence between EIS and the U.S. market took place in
mid-February when the Iranian issue was at the forefront of
investors’ minds (see more on the Zacks ETF Center).
However, now that the problem has been put on the backburner,
EIS has broadly moved higher and has actually outperformed S&P
500 ETFs over the past one month period. Given this shift and the
broadly declining tensions, it could be time to cycle into EIS at
least for the short-term.
Beyond the relatively favorable trends underlying the Israel
ETF, investors can also take solace in the product’s value tilt as
well. Health care stocks take the top spot at just under 25% of
total assets while large caps account for 81% of the fund (read
Three ETFs With Incredible Diversification).
Furthermore, EIS pays out a solid dividend of 3.15% suggesting
that even if the market begins to slide investors should be at
least somewhat protected thanks to this reasonable payout.
Given these factors, EIS could make for a great short-term buy
on the dips for the rest of 2012. The ETF looks likely to shake off
most Iranian tensions in the near term and as we have seen in
recent weeks, tends to bounce sharply higher when the environment
cools down a little (read Three Financial ETFs Outperforming
XLF).
However, once the political picture in the U.S. and Israel
become a little less cloudy, a strike by Israel could be very
possible. When this happens, it seems very likely that Iran could
retaliate either against Israel itself or American installations
closer to Iranian borders.
If this is the case, I certainly wouldn’t want to be holding on
to EIS, as the fund will likely face a heavy slump at that time. So
while this fund seems to have some short term momentum, it looks to
be a definite sell in 2013 or whenever the tensions between Israel
and Iran finally bubble over into armed conflict.
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