US Investment Giants State Street, First Trust Eye Israeli ETF Market

American investment giants State Street and First Trust are preparing to enter Israel's exchange-traded fund (ETF) market, according to a report in Calcalist. Both firms are in the process of registering ETFs that track international indices for trading on the Tel Aviv Stock Exchange. Their entry is expected to intensify competition in a market currently dominated by two other foreign firms, BlackRock and Invesco.

Invesco, which began trading in Israel five years ago, has amassed 10 billion shekels in assets under management. BlackRock, entering the market in July 2019, manages approximately 30 billion shekels. Shi Yona, Invesco's representative in Israel, stated that 75% of the activity in foreign-domiciled ETFs traded in Tel Aviv comes from private investors. He highlighted the advantages of foreign ETFs, including lower management fees, with Invesco's S&P 500 ETF charging 0.09% compared to local funds' 0.7%-0.8%. Yona also addressed tax implications, explaining that Invesco uses synthetic tracking for US index ETFs to avoid withholding tax on dividends, unlike BlackRock's physically backed Irish ETFs.

Local fund managers argue that competition from foreign ETFs is unfair, but Yona dismisses this, suggesting that Israeli fund managers are already conceding defeat due to over 20 billion shekels flowing into foreign funds instead of local ones. He believes the trend of investing in low-fee foreign ETFs is irreversible.

Yona also commented on the bureaucratic process for foreign firms entering Israel, noting that it can take years and cost millions of shekels. He advised that while some investors might opt for self-directed investing in ETFs, most individuals lack the expertise to manage their portfolios effectively and may be tempted by speculative investments.