December 5, 2002
Seeing Green in Israel’s Economy
"Israel doesn't need charity [as much as] it needs investment."
Shlomo Eplboim sees green in the arid landscape that is Israel.
So confident is he of the Holy Land's future that the 30-year-old financial adviser has helped launch a new mutual fund that will invest solely in Israeli high-tech, health care, biotech and other companies.
The Blue & White Fund, one of only a handful of United States-registered funds comprised exclusively of publicly traded Israeli stocks, appears to have won the Israeli government's tacit support. At upcoming presentations in Los Angeles, Miami and New York, Israeli diplomats are expected to tell potential fund investors of their country's strong economic prospects.
"We believe that when the war with Iraq is over, there's a new government in Israel and stability in the region, the value of Israeli stocks will go up," said Doron Abrahami, consul for economic affairs at the Israel Economic Mission of Los Angeles.
Yossi Shain, a professor of government at Georgetown University in Washington, D.C., added that Israel's brainpower and the quality of its high-tech industries make it a good place to invest, despite the current problems.
However, some experts are less sanguine. They argue that Israel is a risky bet because of the intifada, the country's sluggish economy and the looming United States-led war with Iraq that could destabilize the entire Middle East.
Blue & White "is probably not the fund you'd put orphans and widows into," said Jeswald Salacuse, an international law professor and former dean at Tufts University's Fletcher School of Law and Diplomacy in Medford, Mass.
Mutual funds made up of Israeli companies have struggled of late. The First Israel Fund, which came to market a decade ago, lost nearly 24 percent of its value in the first 101Â¼2 months this year. The AMIDEX35 Mutual Fund, a 31Â¼2-year-old fund comprised of the stocks of Israel's 35 biggest companies, plunged by more than 34 percent. A sister fund of Israeli technology stocks closed in November due to investor indifference.
To be sure, most mutual funds have taken a beating. The nearly 8,300 United States-registered funds have lost almost $750 billion, or 11 percent, since the beginning of the year and now have assets valued at $6.2 trillion, said John Collins of the Investment Company Institute in Washington, D.C., a trade association for the mutual fund industry.
Israel's economy appears to be among the most fragile in the industrialized world. That could make funds laden with Israeli stocks particularly vulnerable, experts said.
The International Monetary Fund forecast that Israel's gross domestic product will fall by 1.5 percent this year, compared to an average gain of 1.7 percent for advanced economies. Inflation is expected to increase 6.2 percent in Israel versus an average 1.4 percent hike. At 10.7 percent, Israel's unemployment rate is projected to be nearly twice as high as the 6.4 percent for first-world economies.
Eplboim, the highly charged chairman of Los Angeles-based Blue & White, said he understands the risks but remains a fervent believer in Israel's future. Speaking fluidly with machine-gun speed, he rattled off a string of statistics that paint Israel in brilliant hues
In the past two decades, Eplboim said, the country's exports have grown nearly 700 percent to $29 billion; Israel ranks just behind the Netherlands in education, with 20 percent of the population college educated; it has more engineers per capita than any other place on earth; Israel holds the third highest number of patents globally.
And then there are the companies, Eplboim said, his voice rising with enthusiasm. Teva Pharmaceutical Industries Ltd. ranks among the world's biggest generic drugmakers, while Amdocs Ltd. is the global leader in cellular-phone software.
In Eplboim's opinion, investing in Blue & White -- so named after the colors of the Israeli flag -- could boost flagging Israeli stock prices and possibly stimulate the economy. With higher share prices, Israeli companies would find it easier to borrow from banks, tap private investors and sell additional shares. Firms could then use that money to hire new workers, upgrade technology and improve operations, he said.
"Israel doesn't need charity [as much as] it needs investment," Eplboim said. "Investment creates long-term solutions."
Cliff Goldstein, president of the AMIDEX35, said he expects U.S. Jews to rally behind his and other Israeli mutual funds. Recently, an elderly Pennsylvania woman told him she bought AMIDEX35 shares as a bar mitzvah present for her grandson.
"Because of the terror Israel's been subjected to, Jews are starting to say, 'Hey, I could invest in Exxon but why should I support the Arabs? Maybe I should look at Teva and Amdocs out of solidarity with my people,'" Goldstein said.
Don Cassidy, a senior research analyst for Lipper Inc., a Denver-based consulting firm that tracks mutual funds, said he could envision Jewish investors flocking to Israeli mutual funds, much as the American public bought war bonds during the Second World War. However, he questioned whether the Israeli funds can attract a major following outside the Jewish community, especially since investors have soured on the intentional market and grown more cautious in these turbulent times.
"It'll be a little bit of an uphill battle," Cassidy said.
Blue & White's Eplboim appears ready to fight. He and other Blue & White executives have scheduled a "road show" early this month to tout the fund to such major financial firms as Merrill Lynch and Bear Stearns, as well as to potential Jewish investors. The first stop is Dec. 9 at the Skirball Cultural Center in Los Angeles. Visits to Florida and New York will follow.
To buy into the fund, individuals must pony up a minimum of $1,000 to open a regular account or $250 for an IRA, plus management and commission fees. Eplboim said he hoped Blue & White would hold shares in up to 40 Israeli companies and have up to $50 million under management by early next year. Eplboim Poutre & Co., a Los Angeles-based brokerage firm headed by Eplboim, and RAMCO, a Tel Aviv investment bank, serve as Blue & White's management advisers.
Eplboim's boosterism notwithstanding, his commitment to Israeli appears qualified. In the event of an economic, political or other crisis, Blue & White can pull completely out of Israeli securities and convert 100 percent of its holdings into cash or cash equivalents, according to a document filed with the U.S. Securities and Exchange Commission.
"We have lots of faith," Eplboim said. "But we don't want to be there like a sitting duck in case war breaks out or there's a currency crisis, God forbid."
Investors interested in learning more about Blue & White may attend a special Dec. 9 presentation at the Skirball Cultural Center, 2701 N. Sepulveda Blvd., Los Angeles, from 6 to 8 p.m.
Zvi Vapni, an Israeli deputy consul general, will speak about optimism amid Israel's difficulties.The event is open to the public, and hors d'oeuvres will be served. For more information, call (310) 312-1755 or (866) 372-6326.