Investing in Israeli Brainpower

The iShares MSCI Israel Capped Investable Market Index Fund(EIS) gives investors exposure to the highest concentration of engineers in the world and more scientists per capita than any other developed country.

Israel "is similar to a western democracy," said Jamia Jasper, portfolio manager of the American Israeli Shared Values Fund. "It has one of the most highly educated workforces in the world."

EIS is dominated by health care, materials, financials and information technology. It has $205 million in assets spread across 70 equity holdings with a broad range of market capitalizations including TEVA Pharmaceuticals(TEVA), Check Point Software Technologies(CHKP), Elbit Systems(ESLT) and Partner Communications(PTNR).

EIS has fallen 16% since its inception this past spring. Taking a look at Israel as a whole, the Tel Aviv Stock Exchange has dropped 35% so far this year. This downswing has been similar to that of other global exchanges. Year to date, the S&P 500 has declined 18%, while the FTSE 100 has slumped 19%.

A dip in price might make for an ideal time to buy into Israel. "Israel is going to help you diversify your portfolio on a global basis," Jasper said. "The country doesn't have a subprime crisis like the U.S. They have much tighter lending standards."

Cliff Goldstein, portfolio manager of the AMIDEX35 Israel A Fund(AMDAX), is also bullish on the big picture for Israel. "The country's macroeconomic environment coupled with its legendary track record of innovation make it one of the most attractive markets in the world," he said."Business in Israel is brisk. There is less government spending, lower unemployment and more exports than most other countries."