This might go down as the year of U.S. stocks and the resurgence of some technology and many Internet equities in the world’s largest economies, but other countries are home to burgeoning tech sectors as well.
Israel is a prime example of a developed market with a booming technology startup scene. “Israel’s startup industry has matured to the point of creating 15 to 20 companies that could launch an IPO next year on New York, London or Tel Aviv exchange, the Wall Street Journal reports, citing Nimrod Kozlovski, a partner at Jerusalem Venture Partners.
Since the start of this century, the Israeli IPO market has been in a slumber with the exception of 2007, but 2013’s pace will be better than the past two years and Israeli startups are attracting foreign buyers. “Foreign companies have gobbled up local firms to the tune of $8.4 billion this year — up 48% from a year earlier — including a handful of deals cracking the $1 billion mark,” according to the Journal.
Should country’s IPO market continue improving and the trend of foreign buyers embracing Israeli startups continue, the Market Vectors Israel ETF (NYSEArca: ISRA) could be the Israel ETF that really benefits. ISRA, which debuted in June, competes with the iShares MSCI Israel Capped ETF (NYSEArca: EIS). [Spotlight on Market Vectors Israel ETF]
EIS has had a decent 2013 with a gain of almost 12%, but the ETF allocates over 61% of its weight to financial services and health care stocks. Tech is just 6.2% of the fund’s weight.
By comparison, ISRA is far more levered to the Israeli startup boom with a 31.5% weight to tech stocks. ISRA is also home to nearly 30 more holdings than EIS, giving the new Israel a broader cap reach, which could be seen as a sign that if a spate of Israeli IPOs come to market, some could eventually find a home in ISRA.
As the Journal notes, some Israeli entrepreneurs are now eschewing selling their firms, favoring building larger, multi-national companies. Whether it is mergers and acquisitions activity or building the next Israeli tech giant, ISRA’s tech weight gives it the edge for medium- to long-term success.
And even with the weight to the tech sector, Israeli stocks are not richly valued compared to their U.S. peers. ISRA had a P/E of 16.6 and a price-to-book ratio of 1.87 at the end of November, according to Market Vectors data.
Market Vectors Israel ETF
ETF Trends editorial team contributed to this post.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.