This featured ETF – which invests in Israel-based stocks -- has been one of the top performing foreign single-country ETFs over the past few years, notes Mark Salzinger, editor of The No-Load Fund Investor.
In consider ing the outlook for iShares MSCI Israel (EIS), we need to take a with a close look at its large position in Israel’s largest company.
The performance of EIS has remained relatively strong despite the steep decline in shares of Teva Pharmaceutical (TEVA), the world’s largest manufacturer of generic drugs, which recently accounted for more than 22% of the fund's assets.
Half of Teva’s branded revenue comes from Copaxone, the world’s top-selling drug for multiple sclerosis; Copaxone lost its patent protection in 2015.
Though Teva has converted many patients to a still-protected longer-lasting version, the company’s pipeline has not yet produced a treatment that can replace Copaxone’s lost revenue.
Teva continues to make acquisitions to broaden its branded drug portfolio. On the generic side, Teva has bolstered its leading position with a $40-billion acquisition of the generic drug unit of Allergan (AGN).
Teva expects to realize $1.6 billion in savings in addition to an ongoing $2-billion cost-cutting plan. Teva’s p/e on 2016 earnings was recently 9.7, low on both an absolute and relative basis.
Meanwhile, the rest of the ETF’s portfolio is a mix of domestically focused Israeli companies and leading global players in niche industries.
Domestic companies are bolstered by Israel’s falling unemployment rate, steady — though sluggish — GDP growth and relatively stable consumer prices.
Leading global companies span several different sectors and include real estate owner Gazit-Globe (GZT), cyber security firm Check Point Software (CHKP) and Elbit Systems (ESLT), a defense technology company.
Israeli companies tend to be smaller than average, owing to the size of their home market and the specialization of their global companies. EIS’s average market cap was recently just $5.2 billion, well within the mid-cap range.
The average P/E of the holdings within EIS recently was 14.8. That appears to be an attractive level, considering the stability and innovation of Israel’s economy and the attractive growth and valuation profile of Teva and some other Israeli firms. EIS has an expense ratio of 0.63%.
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By Mark Salzinger, Editor of The No-Load Fund Investor
