Investor Insight: Cliff Goldstein, AMIDEX35 Israel Fund (AMDEX)
Written by: Aaron Katsman | April 29, 2008
The entire interview with Cliff Goldstein of AMIDEX is part of our new subscription newsletter, Israel Opportunity Investor. You can find out more about the product and the opportunities we cover at www.israelnewsletter.com.
Can you tell us how AMIDEX got started?
Cliff Goldstein: I’m a lawyer by trade. In 1998 I saw some really compelling advances being made by Israeli technology companies. I decided to go to brokerage firms to see if I could find a way to invest in this ingenuity. I was specifically looking for a mutual fund that invested in Israeli companies. There wasn’t anything out there. After speaking directly to brokers, it was also clear to me that brokers themselves weren’t really knowledgeable about what was occurring on the ground in Israel. I then went to Israeli Economic Mission to the U.S. to complain about the lack of retail investment opportunities.
Why aren’t there Israeli investment products in the U.S.?
CG: I think part of the problem was that there was no benchmark for those Israeli companies trading in the U.S. There is really no comprehensive index because a significant portion of Israeli marketcap trades in the U.S. and in Tel Aviv. There were indices for the Tel Aviv Stock Exchange (TASE) but not one that included New York as well.We decided in 1999 that we could address this barrier and create our own index that included both U.S. and Tel Aviv listed Israeli companies. As this was a time before Exchange Traded Funds (ETFs) had really developed, we borrowed from the protocols developed by the WEB products. We created an index that included 60% of total Israeli marketcap. To get here, we needed 35 companies to get 60% of the total universe. Most of the companies in the initial index were Israeli companies that traded in the U.S. Given what’s transpired over the past couple of years in the U.S. and the growth of Israeli businesses, we now see the inverse: about 60% of our firms trade in Tel Aviv and the minority in the U.S. It was these 35 companies that comprised the original AMIDEX35. We could then back test historically and when speaking to investors, this really looked good from a performance point of view. When we launched the actual fund in June of 1999, 68% of the companies traded in the U.S. and the remainder in Israel. We thought that the volatility and risk of political disruption would be highest in Israel so we were comfortable with this mix. It’s interesting to think that soon after we had the meltdown of the dot com boom.
What was the reaction to your original marketing efforts?
CG: In the U.S., there seems to be almost a knee-jerk reaction when you mention Israel. It conjures up images of risk, war, and political disruption. Investors are somewhat schizophrenic about Israel. Those interested in Israel have traditionally been Venture Capitalists. Now the mix includes people who are interested in giving charity to Israel and those who view Israel nostalgically.
How do you market your fund?
CG: We do it the old fashion way via brokers. We have 60-70 selling agreements to market the fund via brokerage firms. We also sell directly. I do at least 50 speaking engagements per year to Jewish and Christian groups. Some invest because they like the idea of investing in all Israel has to offer and others invest in our fund to achieve diversification. We have $25 million under management currently. What’s interesting is that the big name banks in the U.S. are either losing a lot of money or flat. Leumi, Poalim, IDB — the Israeli banks continue to make money and support 5% GDP growth. Americans typically viewed Israel as “poor and in need of our support”. We’ve been working to change this perception and consequently, we can’t sell our fund like you would other products. We have to re-educate the market after 60 years of stereotypes. When I travel to Israel, I’m always overwhelmed with how much growth and new wealth is being built there. With Netanyahu’s policies to reduce social expenditures causing a squeeze on the ultra-orthodox to assimilate into the work force, I think this is a good thing at the macro level.
What companies do you like these days?
CG: Teva Pharmaceuticals (Nasdaq: TEVA) is now the largest manufacturer of antibiotics and the largest marketer of generic drugs in America. When you take a generic pill, you have a 40% chance that it’s from Teva. This is the ultimate Israeli success story and they sell all over the world. They’re different because when you talk about M&A, Teva is the acquirer, not acquiree.
Is Teva topped out?
CG: Teva works because there is an enormous array of drugs going off-patent in the next few years and Teva is the best in the world at patent litigation. Teva’s prospects are very sound over the next 5 years.
What else do you like?
CG: I also like Given Imaging (Nasdaq: GIVN). This small stock has been all over the place. It will capture the US market sooner or later with its Camera in a Pill and will find other applications for its technology. We also talk about Israeli privatization efforts. People who fly El Al may not have great things to say about the Israeli airlines. But if you compare this company to Delta (NYSE: DAL) or other U.S. carriers, they’re doing great. And since they went public on the TASE, they’ve done well. Even kibbutzim are going public. Shamir Optical (Nasdaq: SHMR) is one recent example. On the macro level, Israeli is still in its infancy in terms of growth. Production/export is growing very strongly on the back of technology firms like computer security firm, Check Point (Nasdaq: CHKP) and Amdocs (NYSE: DOX) which develops telecommunications billing systems. Our fund has benefited certainly from the strength of the Israeli shekel since the majority of our holdings are traded now in Tel Aviv.
Where do you see Israel competing in the future?
CG: I think Israel will be a public market player in Medical Devices. There’s a ton of innovation going on there. I also think that the movement toward Alternative Technologies, when gas hits $5/$10 per gallon, will cause Israeli entrepreneurs to invest heavily in clean energies. To this end, we like Ormat Technologies (NYSE: ORA). We think geothermal energy as a platform is kind of cool. Why isn’t more media paying attention to what’s going on in this space? We think the company may be worth taking a look at as energy prices cause us to look for viable alternatives. I think 2 things are going to propel investments ahead: 1) Etrade’s (Nasdaq: ETFC) global trading platform: Etrade rolled out global trading capabilities in 2007. It will be a matter of time before U.S. investors will be able to invest directly on the TASE. 2) Israel’s reclassification as an industrialized nation: as more ratings agencies no longer view Israeli as an emerging market, this will benefit Israel in the long term as money flows will find their way to Israeli markets.
Thanks.
NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.
Please see our Disclaimer HERE.
Share with others:
