Since MSCI promoted Israel to developed market status, many investors pared exposure to the country. Nevertheless, investors can utilize exchange traded funds to augment their Israeli equity position.
International investors began to push Israeli stocks to the side after MSCI Inc. shifted the country into its developed-market index and out of the emerging-market benchmark in May 2010, reports Gabrielle Coppola for Bloomberg.
The shift diminished Israel’s overall influence in investors’ portfolios as the country’s weight was reduced to 0.2% on the MSCI World Index, compared to its previous weight of 2.7% in the MSCI Emerging Markets Index. Consequently, volumes on the Tel Aviv Stock Exchange plummeted by 44% over the first two years.
“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, said in the article. “Emerging-market managers over time sold off what they had, and the developed-market managers didn’t really pick up the slack.”
Meanwhile, investors have lost out on potential gains due to underweighting Israel. For instance, the BlueStar Israel Global Index, which includes Israeli shares traded on both in Tel Aviv and abroad, has gained 26% over the past year, compared to the S&P 500 Index’s 22 rise. Over the past five-years, the BlueStar Israel Global Index has returned on average 22% over the past five years, compared to 13% for the MSCI All Country World Index and 16% for the S&P 500.