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By Eli Daniel

Which is the favorite stock of Israeli mutual funds, in terms of value of holdings? It turns out to be

M-Systems Flash Disk Pioneers

(Nasdaq:FLSH), led by CEO Dov Moran, reveals a study by


conducted at the end of the third quarter.

The study encompassed the portfolios of the nine biggest mutual funds in Israel. Five of the nine rated M-Systems one of their 5 most popular stocks. The holdings of the other four funds in M-Systems was not disclosed in the report.

As of the end of the third quarter, these nine funds held 77% of the total assets invested by mutual funds in Israeli stocks trading abroad.

The nine funds together held NIS 132 million worth of M-Systems stock at the end of the third quarter.

Since the end of the third quarter, M-Systems stock has lost more than 60% of its value.

But it is interesting to note that not one of the funds rated M-Systems as its favorite stock. Six funds gave that honor to

ECI Telecom

(Nasdaq:ECIL) and two gave it to Scitex Corp (Nasdaq:SCIX). Following M-Systems is

ECI Telecom

(Nasdaq:ECIL), with accumulated holdings of NIS 121 million. In fact ECI had been the most popular stock among Israel's mutual funds in the second quarter.

Third place is

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Galileo Technology

(Nasdaq:GALT), with holdings of NIS 118 million, recently taken over by Marvell Technology (Nasdaq:MRVL). Galileo is followed by

Gilat Satellite Networks

(Nasdaq:GILTF) and


(Nasdaq:FNDT), with holdings of NIS 108 million and NIS 85 million respectively.

No consensus

Meitav points out there is no parallel between the stocks' popularity and their market cap. The list lacks four of Israel's biggest companies, such as

Check Point Software Technologies

(Nasdaq:CHKP), Comverse Technologies (Nasdaq:CMVT),


(NYSE:DOX), and Mercury Interactive (Nasdaq:MERQ).

The study indicates that there is no consensus between mutuals managers over the stocks most worthy of investment. Among nine managers, seven different stocks took first places.

Other study results indicate that in a long list of overseas-traded Israeli stocks, Israeli mutual funds are holding a not-insignificant part of their equity. This fact is reflected best in the 10.5% holding of mutual funds in

Elscint Industrial Solutions

(NYSE:ELT), 9.2% in

Nur Macroprinters

(Nasdaq:NURM), 9.1% in


(Nasdaq:SILTF), 7% in

Intelligent Information Systems

(Nasdaq:IISLF) and 6.1% in Fundtech.

Meitav points out that the bigger the companies' market cap, the lower the percentage of mutual funds' holdings in the companies' equity.

Dual listing law repercussions

The Meitav study also relates to the repercussions of the dual-listing law on leading indices in the Tel Aviv Stock Exchange.

The study indicates that eight Israeli stocks trading abroad have Maof-25 index potential, perhaps at the expense of current Maof-25 companies, a development which could radically alter the index's makeup and character, making it more hi-tech.

To get an idea of the market cap of Israeli stocks abroad compared to the mutual fund industry, Meitav points out that the market cap of

Check Point Software Technologies

(Nasdaq:CHKP) is worth seven times as much as all the stocks held by all mutual funds in Israel.

Meitav also noted that 89% of all capital managed by the nine biggest mutuals is invested in local Israeli stocks. The rest is invested in Israeli stocks traded abroad. This figure is slightly higher than for the mutual fund industry as a whole, which invests 87% of its capital in locally traded Israeli stocks and 13% in overseas traded Israeli stocks.

Of the nine biggest mutuals, the ones with most holdings in overseas-traded Israeli stocks are Psagot (18%), IBI (14%) and Emda of the

Mizrahi Bank

group (13%).

It should be noted that the study refers to the period before the sharp plunges on Nasdaq since October 2000.