Biggest Israel ETF Experiences Outflows Amid Conflict
Introduction
The iShares MSCI Israel exchange-traded fund (EIS) has seen significant outflows as tensions escalate between Israel and the Palestinian group Hamas. With concerns about a potential wider conflict, the $116.92 million fund, which is the largest ETF exposed to Israeli stocks, has experienced net outflows of $4.94 million this week. This marks its worst weekly performance in a month, according to Lipper data.
Reasons for Outflows
The iShares fund has been negatively impacted due to its exposure to domestic Israeli companies, including Mizrahi and other financial services firms. This has caused investors to withdraw their investments as the conflict intensifies. Financials make up over a third of the fund’s holdings, while tech shares represent the second largest sector.
Performance and Market Impact
The iShares MSCI Israel ETF dropped 1.1% to $49.4 on Thursday, reaching its lowest level since May 2020. Throughout the week, the fund has fallen nearly 9% as both Israeli and global markets experienced a sell-off in response to the conflict. The clashes between Hamas and Israel have resulted in a significant number of casualties and the destruction of entire neighborhoods in the Gaza Strip.
Alternative ETFs and Market Outlook
Two other ETFs exposed to Israeli stocks, the ARK Israel Innovative Technology ETF and the BlueStar Israel Technology, have not witnessed substantial outflows this week. Market experts believe that Israeli technology companies, which operate globally and have demonstrated resilience during turbulent times, are likely to outperform locally-oriented Israeli companies. The CEO of MarketVector Indexes, creator of the ITEQ ETF, expressed this sentiment in a note.
Conclusion
The iShares MSCI Israel ETF has faced significant outflows as investors react to the escalating conflict between Israel and Hamas. With concerns about a wider conflict and the fund’s exposure to domestic Israeli companies, investors have withdrawn their investments. While other ETFs have not experienced the same level of outflows, market experts predict that Israeli technology companies may outperform during this period of regional tensions.
