Israel’s TA-25 Index, the flagship index of the Tel Aviv Stock Exchange (TASE), celebrated its 20th birthday earlier this month. Since its debut back in January 1992, the index has become one of the most widely followed gauges of Israeli stocks and the underlying benchmark for a range of locally listed exchange-traded notes (ETNs)
The index is comprised of 25 of the largest TASE-listed companies. In the past few years these companies have accounted for 55% of the total trading volume of TASE’s equity market and for 70% of its total market capitalisation.
At its launch, the index simply consisted of the 25 companies with the highest market capitalisation on TASE. However, over the years, the index methodology has improved. Adjustments include the introduction of a 10% weighting cap and various criteria relating to liquidity and free float (since 2008 the index has been weighted by free-float-adjusted market capitalisation).
Since its launch in 1992, the index has yielded a cumulative real (i.e. adjusted for inflation) rate of return of 370%, which translates into a 7.7% average annual compounded real rate of return. In US dollar terms, the index gained 583% over the period – equivalent to an annual yield of 9.6%.
Economic cycles are reflected in the annual returns realised by the index. In the boom of 1992, the index achieved a record 87% real rate of return, while in 1994 it lost 37% in real terms. In 2008, the year of the sub-prime crisis, the index plunged 48% in real terms but rebounded in 2009 with a 68% increase.
At the time of inception the total market value of the index’s constituent shares came to $7.8 billion. Today, the market value of these shares comes to $108 billion, a 13-fold increase. Half of this increase can be attributed to new capital raised by the constituent companies and the listing of new large-cap shares on TASE, while the other half is down to share price increases.
The industrial composition of the TA-25 has changed considerably over the past twenty years, reflecting changes in the mix of large companies in Israel. At launch, the portion of investment and holding companies and consumer goods manufacturers in the index stood out. Over the past few years, these companies have almost completely disappeared from the index. Today, in contrast, industries which were barely represented twenty years ago, such as banks, technology and telecommunications, and oil and gas, account for a large part of the index.
Only seven firms have remained in the index since its launch twenty years ago. Of these, Bezeq, Teva and Israel Corporation have retained the same business structure throughout the years, while Dead Sea Works, Elbit, Tefahot Bank and Delek have undergone significant structural change. Eighteen companies have been removed from the index because they failed to meet threshold criteria (market cap or free float).
Current constituents of the index that joined after its inception in 1992 have gained their place via a number of routes. Several companies gained entry by adding a dual listing on the Tel Aviv exchange; some acceded via an IPO; while others have grown in size to now warrant a place among the top 25.
The first ETN on the TA-25 was issued by Psagot Investment House in May 2000, but the market really began to take off in 2005 and since then dozens of ETNs on the TA-25 have been issued. Today, trading volume for all ETNs accounts for 20% of the trading volume of the entire equities market and ETNs are a key component in investment portfolios.
Currently, some 19 ETNs (long, short and leveraged) on the TA-25 are traded with assets under management of to $1.1 billion. The interest exhibited by investors in TA-25 ETNs has driven the entire industry and the issue of scores of ETNs on local share and bond price indices, as well as international share price indices, has followed.
Unfortunately, following the closure of the NYSE Arca-listed NETS TA-25 Index ETF back in 2009 when Northern Trust exited the ETF business (they have since re-entered the industry via the FlexShares brand), there is no easy way to gain direct access to the TA-25 in exchange-traded format outside of Israel. Investors can, however, access Israeli equities more broadly via the iShares MSCI Israel Capped Investable Market Index ETF (EIS) listed on the NYSE Arca. This fund is comprised of 63 holdings and includes most of the TA-25.