Investor Exit Israel ETFs Following Attacks, But Remain Confident In Large-Caps

In recent decades, Israel has become a hotspot for innovation.

Yet the breakout of a war between Israel and Hamas, which controls the Palestinian territory of Gaza, has thrown the country into chaos. Twelve days after Hamas' violent invasion into Israel Oct. 7 and the country’s launch of heavy bombardment in response, thousands of lives have been lost and the conflict has no clear end date in sight.

Israel comfortably earned the nickname of "Startup Nation," with the highest number of unicorns per capita in the world, surpassing other major unicorn hubs like Singapore, Germany and China. 

The country has at least 89 unicorns, also known as companies whose valuation exceeds $1 billion, with a population of 9.3 million, according to a report by Accel.

On Tuesday, President Joe Biden announced a high-stakes visit to the country in show of support. The conflict could impact the U.S. economy to a significant degree.

Ninety-three Israeli companies are listed on U.S. stock exchanges and 20 of them have market caps that surpass $1 billion. This typically makes investing in Israel an enticing idea for investors looking to gain easy access to fast growth.

On Tuesday, the shekel reached eight-year lows against the U.S. dollar. Major ETFs following the country's primary industries, which include tech, defense and pharmaceutical, are down. Only a handful of large-cap companies with international exposure are managing to shrug off risk from the ongoing armed conflict.

4 Major Israel ETFs Pull Back After War Breaks Out

Ishares Msci Israel ETF EIS is the largest ETF following the Israel market by assets under management. The fund, which follows a broad index of Israel equities, is down 13.1% since Oct. 6 at the close — the last trading day before Hamas’ surprise attack — from which the fund has yet to recover.

The fund saw outflows of almost $5 million last week, per Lipper data.

Performance throughout August and September had been relatively stable before the attack.

The Ark Israel Innovative Technology ETF IZRL is down 10.6% since the last trading day before the attack. The fund is focused on providing exposure to Israeli companies that are "causing disruptive innovation in the areas of genomics, health care, biotechnology, industrials, manufacturing, the internet or information technology."

BlueStar Israel Technology ETF ITEQ is down 6.9% since closing time Oct. 6, but the fund has been on a downward spiral in recent months, losing almost 20% of its value since Aug. 1. The VanEck Israel ETF ISRA is down 11.43% since Oct. 6 at the close.

Global Operations Save Israeli Companies From Investor Pessimism

Check Point Software Technologies Ltd. CHKP is the largest U.S.-listed Israeli company, with a market cap of over $16 billion and dual headquarters in Tel-Aviv and San Carlos, California. The company’s stock is so far relatively unscathed since the conflict broke out.

The cybersecurity giant has over 6,000 employees in 70 locations around the world.

On Tuesday, Morgan Stanley upgraded the company from Underweight to Equal-Weight and raised its price target from $118 to $144. Checkpoint's stock price has remained relatively flat over the past month, with minor fluctuations. The company is up 1.6% in the last five trading days with almost no losses or gains in the past month.

Contact center technology Nice Ltd. NICE is down 6.2% since Oct. 6.

Although boasting a market cap of $13 billion and clients around the world, investors still considered it best to steer away from the company in the midst of the country’s current instability.

Pharmaceutical heavyweight Teva Pharmaceutical Industries Ltd TEVA follows an even worse path. Its NYSE-listed ADRs are down 12.4% since Oct. 6.

Fourth by market cap in Israel is Icl Group ICL, also known as Israel Chemicals Ltd. The company produces chemical products including fertilizers, metals and industry-specific minerals like bromine. With major operations in Israel, the company has suffered a drop of 7.28% since Oct. 6.

Investors weren’t as quick to shy away from Israeli defense company Elbit Systems Ltd. ESLT after the news of war broke out, but did sell a few days into the conflict. The company offers a wide range of systems and products for aircraft, land and naval applications used in defense, homeland security and commercial flight.

While the company didn't experience large drops right after the attacks, it has lost 8.9% since Friday at the close as the conflict continues to drag on without a hint at resolution.

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