Portfolio Manager Perspectives

Jeff Benjamin

Israel as a hedge against volatility? Remarkably, yes

AmerIsrael fund's performance not correlated to U.S. equity markets; 'political hot potato'

Jan 27, 2011 @ 2:54 pm

By Jeff Benjamin

Investing in Israel's brain power and technological innovation has proven easier than getting investors to recognize the opportunity. But that has not discouraged Jamia Jasper, manager of the American Israeli Shared Values Fund Ticker:(AISHX).

Ms. Jasper, founder and president of AmerIsrael Capital Management LLC, launched the country sector fund three years ago to fill what she believed was an investment void.

“It's a big job educating people on why Israel is a good investment,” she said.

Despite a solid investment strategy and a proven ability to generate non-correlated equity performance, the fund has so far attracted just $2 million in assets.

Ms. Jasper is hoping that by surpassing the crucial three-year mark last month the fund will start to show up on more investor and financial adviser radar screens.

In addition to the kind of country-specific exposure the fund offers, the performance history during some of the most volatile market periods in recent history should open some eyes.

Last year the fund gained 9.9%, which compares to a 15% gain by the S&P 500 Index.

In 2009, the fund was up 43.6%, while the S&P gained 27%.

And in the fund's inaugural year of 2008, it declined 45.2%, while the S&P fell by 37%.

The portfolio of 49 stocks is currently divided almost evenly between Israel-based companies and U.S. companies that do significant business in Israel.

Ms. Jasper manages the fund from New York and has an analyst based in Israel, but every position in the fund is traded on U.S. exchanges.

The lack of performance correlation between the fund and the U.S. equity markets is better understood when you consider the performance of Israel's Tel Aviv-100 Index.

Last year the local benchmark matched the S&P with a 15% gain, but the 89% gain in 2009 outperformed the S&P by 62 percentage points.

In 2008, the Tel Aviv-100 fell by 50%, lagging the S&P by 13 percentage points.

“Israel went into the recession in better shape than the U.S., because they are a very conservative country and didn't have a sub-prime mortgage problem or a real estate bubble to deal with,” said Ms. Jasper. “Most of the companies in Israel are very conservatively financed.”

Ms. Jasper, who promotes the fund as “bringing together two countries with similar views,” acknowledged that some investors might interpret the strategy as politically-biased.

“It is a political hot potato,” she said, suggesting the strategy might attract some investors for purely political motives and deter others.

However, she added, the objective of the bottom-up, fundamental investment process is to tap into Israel's vibrant and innovative economy.

“Israel is a hub of technological innovation,” she said. “And most Fortune 500 companies are over there doing business in some way.”

Ms. Jasper said her potential universe of stocks includes 100 companies based in Israel and more than 400 U.S. companies that have a “meaningful business connection to Israel.”

One example is Noble Energy Inc. Ticker:(NBL).

The Houston-based company has a 39% ownership stake in three natural gas discovery projects off the coast of Israel.

Peoria, Ill.-based Caterpillar Inc. Ticker:(CAT), another position in the fund, sells equipment to the Israeli military.

In terms of Israel-based companies in the fund, Teva Pharmaceutical Industries Ltd. Ticker:(TEVA) stands out as a major international player.

Teva, which has a market capitalization of $52 billion and is the largest public company in Israel, is a producer of generic and branded pharmaceuticals.

As a country roughly the size of New Jersey and with just seven million people, Israel is heavily weighted toward smaller-cap companies, which can be more volatile than larger-cap stocks.

On the small-cap end of the spectrum, the portfolio includes Given Imaging Ltd. Ticker:(GIVN).

The $526 million company developed a camera-pill that is designed for use in examining a patient's internal organs.

“The idea of the fund is the mine Israel's brain power,” Ms. Jasper said. “The country is second only to the U.S. in technological innovation.”

Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives.

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