Published October 16, 2012
To say the unheralded iShares MSCI Israel Capped Investable Market Index Fund (EIS) has its share of challenges is an understatement. As the lone ETF devoted to the only advanced economy in one of the most politically volatile regions of the world, EIS must endure a seemingly never-ending spate of negative press flowing from the Middle East.
Add to that, Israel made the jump to developed market from emerging market in June 2009. That "promotion" was a demotion for EIS because Israel went from big fish in the emerging markets pond to minnow in the developed markets ocean. Only with the benefit of recent bullishness has EIS been able to move back to the price levels at which it resided before and immediately following Israel's reclassification as a developed market.
Of course, one cannot gloss over the fact that EIS traded above $61 in January 2011. Today, the ETF is merely flirting with $43. In addition to Israel's precarious geography, economic growth there is slowing. GDP growth this year is expected to be 3.5 percent down from 4.6 percent in 2011.
Even with these warning flags, EIS has been on fire as of late. Though few would know it because EIS has average daily volume of just 20,000 shares, the fund has surged 18.2 percent in the past 90 days. However, volume in the fund has shown some signs of spring to life.
"Despite the lower typical volume, we have noted that recent volumes are well above average levels, with one trading day last week where volumes crept above 100,000 shares in just one session alone," said Paul Weisbruch, vice president for ETF and options sales and trading, at Street One Financial in a research note.
As Weibruch points out, another reason that the recent bullish sentiment toward EIS might be flying under the radar is that the ETF resides below the much ballyhooed $100 million in assets under management total. EIS, which has an annual expense ratio of 0.59 percent, had $80.6 million in AUM as of the close of U.S. markets Monday. With a gain of almost 11 percent in the past month, EIS can be added to the list of thriving sub-$100 million ETFs. Additionally, the fund is cheap.
"The fund has a stunningly low P/E ratio currently, at below 5 (4.94 to be exact), but the fund still largely evades the attention of most institutional managers due to its lower assets under management (currently approximately $80 million) as well as its low average daily volume which is south of 20,000 shares.
"What we find interesting in addition to the low P/E valuation of the index/ETF, as well as the impressive recent performance, the fund is reasonably well balanced in terms of its exposure to companies of different market caps. For instance, currently, 38% of the portfolio is devoted to mid-cap names, where as 28% is carved out for microcap and small cap names. Finally, about 33% of the entire portfolio is in the Mega/Large Caps space," wrote Weisbruch.
Investors should note that EIS is top heavy with Teva Pharmaceuticals (TEVA) Israel Chemicals combining for over 30 percent of the fund's weight.
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