Holdings Of The Foreign ETFs In Shares Listed On Tel Aviv Stock Exchange: Yuval Tsuk, Research Unit

The total holdings of the foreign ETFs amount to US$ 6.7 billion (approximately NIS 21 billion).

The foreign ETFs hold shares of close to 150 Israeli companies listed on TASE, in 75 of which the foreign ETFs' holdings constitute more than 3% of the free float.

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	Background
	Recent years have seen a steady growth of investments in ETFs in the Western capital markets. Investors are increasingly inclined to invest in the capital markets through index-tracking ETFs. The selling feature of those ETFs is their passive, accessible and straightforward nature, offering lower management fees than the active mutual funds, and trading continuously unlike their active counterparts. The surge in the total assets of the ETFs was felt in the United States and Canada as well as in Europe. In the United States, for example, total holdings in the ETFs rose from US$ 2.5 trillion at the end of 2016 to US$ 3.4 trillion at the end of 2018, up to a whopping US$ 7.7 trillion as of October 2021. In Europe, too, the ETF market has climbed steeply, currently amounting to US$ 1.4 trillion. In Israel, the capital market underwent a reform in the fourth quarter of 2018, involving a transition from ETNs to ETFs. At the end of 2018, the total assets of the ETFs amounted to NIS 86 billion and, to date, the market of ETFs on equity indices amounts to NIS 102 billion. Most of those ETFs track equity indices, while a smaller portion tracks bond indices. Consequently, the foreign ETFs tracking international indices, which, among others, include shares that are listed on TASE, influence the local equity market. This article covers the holdings of the Foreign ETFs in shares that are listed on TASE. The foreign ETFs hold shares of close to 150 companies that are listed on TASE, in 75 of which the holdings are significant, exceeding 3% of the free float and, in some instances (where the share is also held by thematic/ sectorial ETFs), may even reach 5% or more of the free float. Israeli companies that are listed on TASE also receive exposure on the international markets through their inclusion in the international indices, which allows foreign investors to invest in those companies through ETFs that track the international indices. Large cap companies on TASE can receive exposure both by entering the local TASE indices and by joining international indices. The exposure of the companies also raises the need to increase their activity with the foreign investors, by publishing reports in the English language and focusing on investor relations.


	The managers of the world’s major ETFs hold Israeli shares
	The ETFs of two of the largest global ETF managers, Vanguard and Blackrock (iShares), account for most of the holdings of foreign ETFs in shares that are listed on TASE. Out of the total holdings of US$ 6.7 billion in TASE-listed shares by all foreign ETFs, Vanguard holds US$ 3.1 billion and Blackrock holds US$ 2.3 billion. Far behind those two are the ETFs of Schwab, Invesco and ARK. It should be noted that Vanguard holds larger ETFs in terms of total managed assets in each ETF compared to Blackrock's iShares ETFs, which offer a wider range of ETFs and a far greater number of ETFs than Vanguard. The two largest ETFs are owned by Vanguard, each holding close to 72 TASE-listed shares: · VXUS, tracking the FTSE Global All Cap ex US Index, holds TASE-listed shares with a total market cap of US$ 1.7 billion (approximately 0.42% of the total holdings of the ETF). · VEA, tracking the FTSE Developed All Cap ex US Index, holds TASE-listed shares with a total market cap of US$ 0.9 billion (approximately 0.56% of the total holdings of the ETF). The next two ETFs in terms of the size of holdings in TASE-listed shares are Blackrock iShares ETFs, each holding close to 75 TASE-listed shares: · IEFA, tracking the MSCI EAFE IMI Index, holds TASE-listed shares with a total market cap of US$ 0.7 billion (approximately 0.7% of the ETF's managed assets). · SCZ, tracking the MSCI EAFE Small Cap Index, holds TASE-listed shares with a total market cap of US$ 0.35 billion (approximately 2.3% of the ETF's managed assets). ARK's IZRL ETF, which invests in Israeli technology companies (ARK Israel Innovative Technology ETF), includes close to 75 shares with total managed assets of US$ 0.27 billion, 40 of which are TASE-listed shares with a market cap of US$ 0.15 billion.

The foreign ETFs with the largest holdings in TASE-listed shares

Fund Manager	ETF Name (Ticker)	Benchmark Index	ETF Type	Holdings on TASE ($B)
Vanguard	Total International Stock (VXUS)	FTSE Global All Cap ex US	Geographic	1.7
Vanguard	FTSE Developed Markets (VEA)	FTSE Developed Markets	Geographic	0.9
Blackrock	iShares Core MSCI EAFE (IEFA)	MSCI EAFE	Geographic	0.7
Blackrock	iShares MSCI EAFE Small-Cap (SCZ)	MSCI EAFE Small-Cap	Geographic	0.35
Blackrock	iShares MSCI EAFE (EFA)	MSCI EAFE	Geographic	0.23
Vanguard	FTSE All-World ex-US (VEU)	FTSE All-World ex-US	Geographic	0.21
Schwab	International Equity (SCHF)	FTSE Developed ex US	Geographic	0.16
ARK	Israel Innovative Technology (IZRL)	ARK Israel Innovative Technology	Thematic (Sector/Geographic)	0.15
Blackrock	iShares MSCI EAFE Min Vol Factor (EFAV)	MSCI EAFE Min Vol	Geographic	0.14
Blackrock	iShares Core MSCI Total International Stock (IXUS)	MSCI ACWI ex USA IMI Index	Geographic	0.14
INVESCO	Invesco Solar (TAN)	MAC Global Solar Energy Index	Thematic /Sectorial	0.14
Blackrock	iShares MSCI Israel (EIS)	MSCI Israel IMI Capped	Geographic	0.13

The indices tracked by the foreign ETFs

Most of the foreign ETFs track the indices of the two leading index companies: FTSE and MSCI.

The primary indices of FTSE that include TASE-listed companies and are tracked by the ETFs are geographic indices:

Index	Company size	Geographical area
FTSE Global All Cap ex US index	Large, mid and small cap	Developed and emerging countries, excluding the United States
FTSE Developed Markets index	Large, mid and small cap	Developed countries, excluding the United States
FTSE All-World ex-US	Large and mid cap	Developed and emerging countries, excluding the United States
FTSE Developed ex US	Large and mid cap	Developed countries, excluding the United States

The FTSE All Cap indices include 72 TASE-listed shares (large, mid & small cap) as of the end of October 2021. About half of those are large to mid cap companies with a market cap of US$ 2 billion and above, and the other half are defined by FTSE as small cap, with a minimum market cap of US$ 0.5 billion.

The primary indices of MSCI that include TASE-listed companies and are tracked by the ETFs are also geographic indices:

Index	Company size	Geographic area/ characteristic
MSCI EAFE	Large and mid cap	Europe (including Israel), Australia and the Far East
MSCI EAFE Small-Cap	Small cap	Europe (including Israel), Australia and the Far East
MSCI ACWI ex USA IMI	Large, mid and small cap	Developed and emerging countries, excluding the United States
MSCI Israel IMI Capped	Large, mid and small cap	Israel

To date, the threshold market cap for joining the standard indices (MSCI Large & Mid Cap) is US$ 4.8 billion and the free float value threshold is US$ 2.4 billion.

In the latest rebalance of November 2021, four TASE-listed shares entered MSCI's Small Cap indices - Electra Real Estate, Perion, Retailors and Nayax. Commencing in the end of November 2021, the Small Cap indices will include 78 TASE-listed shares, the market cap of the smaller of which was approximately US$ 0.5 billion as of the end of October.

The indices of S&P also serve as an underlying asset for various ETF managers, mainly sectorial, such as:

· S&P Global ex-U.S. Property Index

· S&P Global Clean Energy Index

88% of the foreign ETFs' investments in TASE-listed shares are executed through geographic ETFs.

While most of the ETFs that invest by geographic area are of Vanguard and Blackrock, the ETF managers that stand out among the non-geographic ETFs (sectorial/ thematic/ ESG/ dividend) include Invesco, DWS XTrackers, WisdomTree and Global X.

Type of ETF (the index)	Value of holdings (US$, in billions)
Geographic	5.8
Other - sectorial/ thematic/ ESG/ dividend	0.9


	Shares with the largest foreign ETF holdings
	The foreign ETFs hold close to 150 TASE-listed shares, with holdings of 3%-4% of the free float value in mid- to large-cap companies. Approximately US$ 5 billion, representing upwards of 75% of the total holdings of the foreign ETFs in TASE-listed shares, are in shares included in TA-35, representing on average more than 4% of the free float of the shares in the index. Outstanding alongside the dual-listed shares and bank shares are the holdings in the renewable energy shares Enlight, Energix, Doral and Nofar, with a relatively high rate of foreign ETF holdings (more than 5% of the free float), due to an additional holding by thematic ETFs that focus on green/ solar energy companies, such as the ETFs of iShares and Invesco. Maytronics also stands out thank to investments by the thematic robotics and AI ETFs of Global-X and iShares.

The 40 shares with the largest foreign ETF holdings (as of October 2021)

#	Name of share	Ticker symbol	MSCI	FTSE	Total holdings by foreign ETFs ⁽¹⁾ (US$, in millions)	Percentage of the holdings in the free float ⁽²⁾
1	Nice	NICE	Large+Mid Cap	Large+Mid Cap	756	4.2%
2	Leumi	LUMI	Large+Mid Cap	Large+Mid Cap	655	4.8%
3	Poalim	POLI	Large+Mid Cap	Large+Mid Cap	516	4.5%
4	Discount	DSCT	Large+Mid Cap	Large+Mid Cap	286	4.1%
5	ICL	ICL	Large+Mid Cap	Large+Mid Cap	263	4.3%
6	Teva	TEVA	⁽⁴⁾---	Large+Mid Cap	262	2.7%
7	Mizrahi-Tefahot	MZTF	Large+Mid Cap	Large+Mid Cap	237	4.4%
8	Enlight	ENLT	Small Cap	Large+Mid Cap	215	9.2%
9	Azrieli	AZRG	Large+Mid Cap	Large+Mid Cap	184	5.4%
10	Elbit Systems	ESLT	Large+Mid Cap	Large+Mid Cap	163	4.3%
11	Tower	TSEM	Small Cap	Large+Mid Cap	138	3.9%
12	Nova	NVMI	Small Cap	Large+Mid Cap	114	3.9%
13	Mivne	MVNE	Small Cap	Large+Mid Cap	110	4.8%
14	Energix	ENRG	Small Cap	Large+Mid Cap	106	10.3%
15	First International	FIBI	Small Cap	Large+Mid Cap	97	4.7%
16	Alony Hetz	ALHE	Small Cap	Large+Mid Cap	90	3.7%
17	Maytronics	MTRN	Small Cap	Large+Mid Cap	86	7.6%
18	Bezeq	BEZQ	Small Cap	Large+Mid Cap	80	3.1%
19	Melisron	MLSR	Small Cap	Large+Mid Cap	74	3.8%
20	Shufersal	SAE	Small Cap	Large+Mid Cap	73	3.3%
21	The Phoenix	PHOE	Small Cap	Large+Mid Cap	69	3.7%
22	Airport City	ARPT	Small Cap	Large+Mid Cap	65	5.1%
23	Strauss	STRS	Small Cap	Large+Mid Cap	60	4.1%
24	Harel Investments	HARL	Small Cap	Large+Mid Cap	60	4.7%
25	Israel Corporation	ILCO	Small Cap	Large+Mid Cap	59	4.1%
26	Big	BIG	Small Cap	Large+Mid Cap	58	3.5%
27	Amot	AMOT	Small Cap	Large+Mid Cap	58	3.8%
28	Clal Insurance	CLIS	Small Cap	Small Cap	56	3.8%
29	REIT 1	RIT1	Small Cap	Small Cap	55	4.9%
30	Paz Oil	PZOL	Small Cap	Large+Mid Cap	54	4.4%
31	Shikun & Binui	SKBN	Small Cap	Large+Mid Cap	54	4.0%
32	Gav-Yam	GVYM	Small Cap	Large+Mid Cap	46	9.8%
33	Camtek	CAMT	Small Cap	Small Cap	45	4.3%
34	Matrix	MTRX	Small Cap	Small Cap	43	5.0%
35	Electra	ELTR	Small Cap	Large+Mid Cap	42	3.2%
36	Danel	DANE	Small Cap	Small Cap	41	4.1%
37	Fox	FOX	Small Cap	Small Cap	39	3.8%
38	Brack N.V.	BCNV	Small Cap	Small Cap	37	13.8%
39	Shapir	SPEN	Small Cap	Large+Mid Cap	37	3.2%
40	Sapiens	SPNS	Small Cap	Large+Mid Cap	36	3.3%
	Total				5,519

(1) Holdings in dual-listed shares registered with the ETF manager under TASE were taken into account.

(2) Based on the free float market cap at the end of October 2021.

(3) TA-35 companies - Perrigo, LivePerson, Opko and Ormat Technologies are considered by the ETF managers as U.S. companies rather than Israeli companies. Accordingly, the holdings in their shares are reported through the exchanges in the United States.

(4) Vanguard considers Teva as an Israeli company, therefore its holdings in the share are reported under TASE. Blackrock, on the other hand, considers Teva as a U.S. company and, accordingly, the ETFs' holdings in the share are reported under NYSE.

The data in this article were taken from the websites of the ETF managers and the Bloomberg terminal. The data concerning the composition of the ETFs were collected in the second half of October and the beginning of November and reflect the composition of the ETFs at the end of September or the end of October.


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