TEL AVIV, Israel -- Investors seeking exposure to Israel's market in the wake of Berkshire Hathaway's (BRK.A) - Get Report $5 billion purchase of Iscar will soon be offered an all-Israeli options index, the first of its kind.
According to sources close to the matter, the index is being planned for a mid-June launch, pending final legal approval of the agreement between the exchange and the broker-dealer firm. The index, which will be administered by Hapoalim Securities USA and traded on the Philadelphia Stock Exchange, will consist of 16 Israeli companies that trade dually on the Tel Aviv market and on the
New York Stock Exchange
as American depositary receipts.
Among the companies included in the index would be generic drugmaker
; Nice Systems
, which makes systems that monitor businesses' customer interactions;
, Israel's second-largest cellular operator by users; drug developer
Delta Galil Industries
, an intimate-apparel and underwear company.
An options index gives investors exposure to an entire segment by following an underlying index, similar to an exchange-traded fund. Unlike a stock-based ETF, the options index provides exposure to its components by creating synthetic contracts -- buying calls and selling puts.
Like other traded indices, the Israeli options index will be evaluated periodically and rebalanced whenever an occasion would arise requiring a component change, a source close to the matter said.
Barbara Sorid, a spokeswoman for the Philadelphia Stock Exchange, said the exchange doesn't comment on prospective business matters.
"An Israeli company index or fund, whether options-based or securities-based, makes complete sense under the current market conditions," says Ronen Zeharia, vice president of investments at Meitav, an Israeli investment house. "There is definitely a growing interest in Israeli companies; it makes you wonder why this hasn't been done yet."
Zeharia says that this type of a financial vehicle probably won't attract herds of investors to Israeli companies, but will draw private investors or smaller money-management firms wishing to include an emerging-market component in their portfolio.
"Merrill Lynch or Deutsche Bank won't be needing such an index; they already have enough presence here and can do the stock picking themselves. It is the smaller ones who are likely to want a 1% or so exposure to Israel who could benefit from this," Zeharia said.
The trading job in the options index has already been assigned to a Philadelphia-based options-trading firm, which requested anonymity pending legal approval of the index. The firm declined to provide any details on the deal with Hapoalim Securities.
Bank Hapoalim, Israel's largest bank and the options-index sponsor, didn't have a broker-dealer operation until March, when it acquired the New York-based broker-dealer firm Investec US for roughly $40 million. Hapoalim Securities emerged as the new entity formed under the deal.
Bank Hapoalim itself registered its own shares on the U.S. over-the-counter market in late March, right after the Investec deal was completed, meaning that it could, theoretically, make it into the index. Bank Hapoalim declined to comment.
The new options fund comes against the backdrop of a bullish time in Israel. The Berkshire-Iscar deal once again highlighted the country as a fertile ground for growing investment-grade companies. Also in the background are a successful election that brought a moderate, peace-seeking government and a whopping 6.6% gross domestic product growth in the first quarter of this year, which followed a 7% growth rate in the previous quarter.
"The transfer of power from
Ariel Sharon to
Ehud Olmert without a hitch shows that Israel is truly the only democracy in the Middle East, " says Laura Goldman, who runs LSG Capital and is based in Tel Aviv. "After the disengagement, Israel seems to be on the road to peace. With less money spent on defense, Israel will have more money to develop the nation."
Goldman is bullish on Teva, Partner,
, adding that "investors can also benefit from Israeli companies as a diversification from the dollar."
Meanwhile, Charlotte Crosswell, Nasdaq's vice president for Europe, Middle East and Africa, announced at a conference in Tel Aviv Sunday that Nasdaq plans to launch an Israeli index, consisting of the 75 Israeli companies listed on the market.
Asaf Homossani, Nasdaq's managing director of Israel and Central Eastern Europe, said in an interview that there is strong demand for Israeli securities at the Nasdaq. "That's why we decided to launch this index," he said. "We hope it will help increase the visibility for these companies." The index is projected to launch by the end of June.