IBI Investment House, the Tel Aviv-based company which manages and markets mutual funds, provident funds and other long term savings products, has extended its range of smart beta funds with the launch of the first low-volatility high-dividends fund of large-cap Israeli stocks. The fund is listed on the Tel Aviv Stock Exchange (Tase) and is linked to the Solactive B-BRE Tel Aviv 125 Low Volatility High Dividends Index which is the result of a collaboration between Bregman-Baraz Real Estate (B-BRE) and Solactive.
The index mirrors the performance of a selection of 25 shares from the TA-125 index and is denominated in ILS. It’s the third time IBI has teamed up with the Israeli real estate research and consulting company and the German index provider, with previous products linked to Solactive B-BRE indices on the Israeli CRE market and the US Reit sector, according to Shai Sasportas (pictured), head of ETF sector, IBI Investment House.
“We have been collaborating with B-BRE for a few years and they often come up with good ideas. We find them very professional, with a deep understanding of the markets and they use very good methodologies” said Sasportas. “The first time we worked with them was with the B-BRE Israel Commercial Real Estate (CRE) Index which launched in December 2011 and was calculated and distributed by Solactive. We used the index as underlying for one of our tracking funds and that went pretty well.”
Israel has a large market for exchange-traded notes (ETNs) which are listed on Tase, and, according to Sasportas, this segment is growing fast, alongside the ‘traditional’ asset management products. “We also see a steady growth in special ETNs – what you can call ‘smart beta’ products such as the new ETN we launched,” said Sasportas noting that IBI has around 50 tracking funds that follow Europe, the US and developed markets.
There are currently more than 400 ETNs listed on Tase, including 63 linked to local indices, however, the trading volume of structured products is marginal, with less than ten structured bonds listed on the exchange while exchange-traded funds (ETFs) are not available for trading at all. “Here in Israel we do not yet have ETFs such as the ones we know in the global market. Passive products in Israel can either be ETNs or tracking funds,” said Sasportas.
The Israel Securities Authority (ISA) would need to change the securities law to grant investors’ access to ETFs via Tase, according to Sasportas. “Once ISA has made the necessary changes in the regulations we could also start seeing ETFs but in the meantime there are only ETNs which are kind of similar to structured notes or tracking funds which is a normal mutual fund. They are the same products but come under two different types of ISA regulation.”
It’s hard to tell whether the regulator will make those changes anytime soon, according to Sasportas.
“As far as I remember, [ISA] started the process a while ago, probably in 2010 as I recall. These days there is now talk that in 2018 the changes will materialise.”
The Solactive B-BRE Tel Aviv 125 Low Volatility High Dividends Index is calculated as a gross total return index. Components are weighted according to inverse volatility, subject to an industry weight cap of 35%. The weighting mechanism of the index also outweighs index components that have a history of being high dividend payers. As of June 5, 2017, the three shares with the largest index weight according to inverse volatility are First International Bank of Israel (9.19%), Matrix IT (8.94%) and Paz Oil Company (8.93%).
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