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Israel – 75 Years of Growth and Innovation

May 18, 2023

Read Time 4 MIN

Israel, celebrating its 75th Anniversary, remains positioned for sustained economic growth due to its demographics, GDP growth, thriving consumer discretionary sector, and cutting-edge technology.

Israel will mark its 75th Independence Day on May 14, 2023 and over this time, the country has established its pedigree in innovation and is home to many successful companies in technology, health care and defense industries. However, there is much more to Israel than just being a start-up nation.

One of the key strengths of Israel is its demographics, Israel has one of the youngest and most educated populations amongst developed market countries. In 2022, 28% of the population was under the age of 15 with 60% of the country’s population falling within the working age range.1 This provides a solid foundation for economic growth, as a large and growing workforce is essential for driving productivity and innovation. In addition, younger individuals generally tend to be more optimistic about their financial future and are willing to spend more of their disposable income. This per capita spending drives up consumption growth and gross domestic product (GDP).

Over the past decade, Israel's per capita GDP has been steadily increasing, driven by strong growth in sectors such as technology, healthcare and finance. In 2022, Israel's per capita GDP was $54,847.28, up from $38,327.80 in 2016. Israel’s per capita GDP surpassed Germany in 2021, and the country remained amongst the richest countries in Europe in 2022.2 This growth trajectory is expected to continue in the coming years, making Israel a compelling destination for long-term investors.

GDP Per Capita of Select European Countries

GDP Per Capita of Select European Countries

Source: Ceicdata.com.

Israel's consumer discretionary sector appears to be a direct beneficiary of higher per capita GDP. The consumer discretionary sector includes industries such as retail, entertainment and hospitality, and is driven by consumer spending. In Israel, the consumer discretionary sector has been growing steadily in recent years, thanks to factors including rising disposable incomes, changing consumer preferences and increased tourism. The market capitalization of consumer discretionary sector companies in the MarketVector BlueStar Israel Global Index grew by a factor of eight over the past five years alone, expanding from $1,070M to $9,716M in May 2023.3 Fox-Wizel Ltd, a manufacturer and designer of clothing, fashion accessories, cosmetics and home fashion experienced tremendous growth over the past five years, with its market cap increasing four times over this period. Maytronics, a producer and distributor of swimming pool equipment experienced a similar growth trajectory with market cap increasing 129% over the past five years.4

Market Capitalization of Consumer Discretionary Sector

Market Capitalization of Consumer Discretionary Sector

Source: FactSet data for MarketVector BlueStar Israel Global Index as of 5/8/2023.

Israel is also experiencing positive trade momentum as a result of the Abraham Accords (a series of agreements between Israel and several Arab countries that were signed in 2020). The Accords represent a historic breakthrough in the normalization of relations between Israel and Arab countries in the Middle East and aim to promote regional stability and economic cooperation by establishing diplomatic relations, opening up embassies and promoting trade and investment between the countries. Trade between Israel and UAE reached a new record in 2022 at $2.56 billion, up from $700 million in 2020.5

With its young and growing workforce, strong per capita GDP growth, vibrant consumer discretionary sector and a world-class technology industry, Israel is well-positioned to continue driving economic growth in the coming years. By investing in Israel, investors can gain exposure to a dynamic and innovative economy that offers significant growth potential and long-term opportunities for value creation. Despite a global economic slowdown, Israel is forecasted to achieve at approximate 3.0% GDP growth in 2023 and 3.4% in 2024, as compared to advanced economies that are projected to grow only 1.0% ~ 1.3% over the next two years.6

Israel received developed market status from leading benchmark providers more than a decade ago. It went from being a medium-sized market within emerging markets (EM) indexes to a miniscule weight in global developed market indexes. The reclassification from MSCI left Israel equities underweight in passive and benchmarked developed market portfolios. We believe investors seeking to build a comprehensive global equity portfolio should consider Israel exposure.

When thinking about how to access the opportunity provided by Israeli companies, a diversified approach utilized by the VanEck Israel ETF (ISRA) may provide investors the opportunity to capitalize on Israel’s favorable macroeconomic trends. ISRA provides investors a diversified exposure to the country’s broad sectors. On a 10-year look-back as of April 30, 2023, the MarketVector BlueStar Israel Global Index provided favorable returns at an attractive risk premium relative to global developed and emerging markets indexes.

Indexes Return Std Dev Sharpe Ratio
MarketVector BlueStar Israel Global Index NR USD 5.02 20.72 0.37
MSCI EM NR USD 1.93 19.01 0.17
MSCI EAFE NR USD 4.83 17.40 0.40
MSCI EM Growth NR USD 2.90 20.42 0.24

Time period 5/1/2013 – 4/30/2023.

Source: Morningstar. Past performance is not indicative of future results.

MarketVector BlueStar Israel Global Index

MarketVector BlueStar Israel Global Index

Source: FactSet data for MarketVector BlueStar Israel Global Index as of 4/30/2023.

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Important Disclosure

1 As defined by OECD, working age population is those aged between 15 to 64.

2 Ceicdata.com.

3 FactSet data as of 5/8/2023.

4 FactSet data as of 5/8/2023.

5 https://www.arabnews.com/node/2237391/business-economy.

6 Data from International Monetary Fund and OECD.

Index Definitions:

The MarketVector BlueStar Israel Global Index (BLS - 'BIGI') tracks all global Israeli companies, across all sectors of the economy, irrespective of their listing venue. The definition of an Israeli company is based on MarketVector's proprietary research-driven framework.

The MSCI Emerging Markets Index captures large and mid cap representation across 24 Emerging Markets (EM) countries.

The MSCI EAFE Index is an equity index which captures large and mid cap representation across 21 Developed Markets countries around the world, excluding the US and Canada.

The MSCI Emerging Markets Growth Index captures large and mid cap securities exhibiting overall growth style characteristics across 24 Emerging Markets (EM) countries.

This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and forward-looking statements, which do not reflect actual results, are valid as of the date of this communication are and subject to change without notice. Information provided by third-party sources is believed to be reliable and has not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third-party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its employees. Past performance is not indicative of future results.

An investment in VanEck Israel ETF (ISRA) may be subject to risks which include, but are not limited to, special risk considerations of investing in Israeli issuers, foreign securities, foreign currency, depositary receipts, information technology sector, financials sector, micro-, small- and medium-capitalization companies, equity securities, market, operational, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified and index-related concentration risks, all of which may adversely affect the Fund. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates which may negatively impact the Fund's return. Micro-, small- and medium-capitalization companies may be subject to elevated risks.

The MarketVector BlueStar Israel Global Index® is the exclusive property and a trademark of MarketVector IndexesTM (MarketVector) and has been licensed for use for certain purposes by Van Eck Associates Corporation for VanEck Israel ETF (the "Fund") based on the MarketVector BlueStar Israel Global Index®. The Fund is not sponsored, endorsed, sold or promoted by MarketVector IndexesTM (MarketVector), and MarketVector IndexesTM (MarketVector) makes no representation regarding the advisability of trading in the Fund.

Index returns are not Fund returns and do not reflect any management fees or brokerage expenses. Certain indices may take into account withholding taxes. Investors cannot invest directly in the Index. Returns for actual Fund investors may differ from what is shown because of differences in timing, the amount invested and fees and expenses. Index returns assume that dividends have been reinvested.

Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.

© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.

Important Disclosure

1 As defined by OECD, working age population is those aged between 15 to 64.

2 Ceicdata.com.

3 FactSet data as of 5/8/2023.

4 FactSet data as of 5/8/2023.

5 https://www.arabnews.com/node/2237391/business-economy.

6 Data from International Monetary Fund and OECD.

Index Definitions:

The MarketVector BlueStar Israel Global Index (BLS - 'BIGI') tracks all global Israeli companies, across all sectors of the economy, irrespective of their listing venue. The definition of an Israeli company is based on MarketVector's proprietary research-driven framework.

The MSCI Emerging Markets Index captures large and mid cap representation across 24 Emerging Markets (EM) countries.

The MSCI EAFE Index is an equity index which captures large and mid cap representation across 21 Developed Markets countries around the world, excluding the US and Canada.

The MSCI Emerging Markets Growth Index captures large and mid cap securities exhibiting overall growth style characteristics across 24 Emerging Markets (EM) countries.

This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and forward-looking statements, which do not reflect actual results, are valid as of the date of this communication are and subject to change without notice. Information provided by third-party sources is believed to be reliable and has not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third-party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its employees. Past performance is not indicative of future results.

An investment in VanEck Israel ETF (ISRA) may be subject to risks which include, but are not limited to, special risk considerations of investing in Israeli issuers, foreign securities, foreign currency, depositary receipts, information technology sector, financials sector, micro-, small- and medium-capitalization companies, equity securities, market, operational, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified and index-related concentration risks, all of which may adversely affect the Fund. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates which may negatively impact the Fund's return. Micro-, small- and medium-capitalization companies may be subject to elevated risks.

The MarketVector BlueStar Israel Global Index® is the exclusive property and a trademark of MarketVector IndexesTM (MarketVector) and has been licensed for use for certain purposes by Van Eck Associates Corporation for VanEck Israel ETF (the "Fund") based on the MarketVector BlueStar Israel Global Index®. The Fund is not sponsored, endorsed, sold or promoted by MarketVector IndexesTM (MarketVector), and MarketVector IndexesTM (MarketVector) makes no representation regarding the advisability of trading in the Fund.

Index returns are not Fund returns and do not reflect any management fees or brokerage expenses. Certain indices may take into account withholding taxes. Investors cannot invest directly in the Index. Returns for actual Fund investors may differ from what is shown because of differences in timing, the amount invested and fees and expenses. Index returns assume that dividends have been reinvested.

Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.

© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.