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From upstart nation to ‘Start-Up Nation’

Warren BorosonCover Story
Published: 11 December 2009

It’s rated only three stars (for “average”) by Morningstar Mutual Funds over 10 years, but its performance more recently has been superb. Its three-year and five-year ratings are five stars, tops. And this year, the fund has risen 50 percent.

The Amidex35 Israel Mutual Fund has handily outperformed its most similar index — by 5.08 percent over three years, by 10.54 percent over five years. Unfortunately, it began life 10 years ago, just as the dot.com bubble was about to burst. That hurt its record, but it’s still in the top half of world stock funds over 10 years.

The fund is an index fund; it owns shares of the 35 largest Israeli stocks on the Tel Aviv Exchange, the New York Stock Exchange, and the Nasdaq. (Their size is measured by their market capitalization — price times shares outstanding. Nasdaq is where smaller companies usually trade.) Why 35? An index fund is supposed to reflect 60 percent of the value of a country’s stocks — and 35 turned out to be the magic number.

The fund’s expense ratio is high — recently 3.24 percent a year. One reason: The fund doesn’t have much in the way of assets — only $18.5 million. Also, Cliff Goldstein, the fund company’s president, says there’s little competition among the fund’s suppliers.

The fact that there are only 35 stocks in the fund is considered a risk factor. So, of course, is the fact that all of the stocks are in one country.

Even so, this seems to be a sensible way for investors to get exposure to Israeli stocks.

You can buy shares directly by calling 1-888-876-3566. The minimum first investment is $500, with $250 for later investments. For automatic payments, the minimum amounts are $100, and $100 for reinvestments. There’s a 2 percent redemption fee for shares held for less than a year.

 
 

From upstart nation to ‘Start-Up Nation’

The case for Israeli stocks

Isn’t investing in Israeli stocks too risky?

That’s one of two questions people tend to ask Cliff Goldstein, 53, president of the Amidex35 Israel Mutual Fund in Valley Forge, Pa.

image
Cliff Goldstein

Goldstein, a lawyer, answers that in an age when former true-blue-chip stocks like AIG and GM have fallen off a cliff, “the concept of risk needs to be modified.” Israel, meanwhile, has “thrived despite government turnover, no peace agreements with its neighbors, and actual wars. The Tel Aviv Stock Exchange has vastly outperformed the Standard & Poor’s 500.” The Tel Aviv Index has climbed 60 percent over the past five years, the S&P 500 is down 4 percent.

The second question he’s asked: Why not just continue buying Israeli bonds? Bonds, he replies, are just loans — and when Israel was an exclusively socialist country, it badly needed bonds. “But now some of the world’s leading companies are headquartered in Israel, and investors have an opportunity to share in their growth.”

An example he gives: Teva, the pharmaceutical company, is the leading seller of generic drugs in the United States — and the leading seller of antibiotics throughout the world.

Goldstein launched Amidex35 in 1998. “I come from a long line of Zionists,” he says, “and I found that there was no way to invest in an Israeli mutual fund.” He talked with members of the Israeli Economic Mission, then they — joined by a few philanthropists, business leaders, and Zionists — started Amidex35. (The term comes from words meaning “friend” and “index.”) They also started the first combined index of Israeli stocks traded on Wall Street with the Israeli stocks traded on the Tel Aviv Exchange.

He’s thumbed through the new book “Start-Up Nation.” So, what’s his answer to the question, why has Israel been so innovative?

“Necessity,” he says. “Because Israel was so isolated, it had to become self-sufficient. Militarily, technologically.”

Some people think “there’s something in the blood,” Goldstein goes on. “The emphasis on education, on innovation. But lately, high-tech has become the national sport. Years ago, the second generation kvelled when someone went to medical school. Now they kvell when someone has a high-tech start-up. It’s a craze.”

Besides, he adds, “Because everyone does military service, they become a bit more mature, and learn teamwork and courageous thinking.”

Also, the government invests a ton of money in research and development, and a lot of money from other countries has been flowing into Israel as venture capital.

But why hasn’t the standard of living in Israel kept pace with its economic growth? “The rich have gotten richer,” he replies, “and the poor — not so much. Where once you saw rickety old cars in Israel, now you see BMWs and Mercedes — and apartments in Tel Aviv selling for $20 million. Several Israelis are on the Forbes list of billionaires.

“In Israel, the two groups, the rich and the not-so-rich, are in stark contrast — like the difference between people living in Newark, New Jersey, and in Alpine.”

 
 
 
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