Israeli Equities Gain 5% in August Continuing their Significant Outperformance; Israeli Tech Stocks Now Lead Broad Global Tech Benchmarks for 2018

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1 Sept. 12, 2018 ISRAEL EQUITY REVIEW & OUTLOOK What s Inside 1. Key Insights 2. August Performance and Economic Highlights 3. Domestic vs. Globally-Oriented Israeli Stocks 4. Technical Analysis of Israeli Equities About BlueStar Indexes BlueStar Indexes is a leading provider of research and investment solutions for the Israeli capital markets. BlueStar has been producing monthly market updates on the Israeli market since In our Israel Equity Review and Outlook we provide data and insight on recent performance of Israeli equity benchmarks, stocks and sectors driving performance, key economic data for the Israeli market, as well as technical analysis of our equity indexes. The BlueStar Israel Global Index (BIGI or BLS & BLSTR INDEX on Bloomberg) is the broadest and deepest benchmark for Israeli equities trading worldwide in Tel Aviv, New York, London, Singapore and Australia. The VanEck Vectors Israel ETF (ticker ISRA) tracks BIGI and is listed on the NYSE. In addition, Israel-domiciled investment vehicles tracking BIGI are offered by Psagot and IBI. The BlueStar Israel Global Technology Index (BIGITech or BGTH & BGTHTR INDEX on Bloomberg) is the broadest and deepest benchmark tracking the performance of Israeli companies operating in innovative sectors like information technology, defense technology, clean technology and bio-technology. The BlueStar Israel Technology ETF (NYSE ticker: ITEQ ) tracks BIGITech. In addition, there are two Israel-domiciled investment vehicles tracking BIGITech managed by KSM/Excellence. BlueStar also maintains five additional Israel Equity Indexes (BIGI -TIM, IGEI, IDEI, BIGI -SD and BIGI -SV), one Israel Government Bond Index (BIGUSD), and nine Global Thematic/Tech Equity indexes. Approximately US$410 million in index-tracking assets are benchmarked to BlueStar Indexes as of end-august Israeli Equities Gain 5% in August Continuing their Significant Outperformance; Israeli Tech Stocks Now Lead Broad Global Tech Benchmarks for 2018 Highlights (as of August 30, 2018): Israeli stocks as defined by the BlueStar Israel Global Index (BIGI ) added 5.12%, bringing its 2018 YTD performance to 12.25% % above EAFE s -2.28% YTD return. Israeli technology stocks, as defined by The BlueStar Israel Global Technology Index (BIGITech ), were up 4.8% in August, adding to the BIGITech s impressive YTD performance of 16.2%. Israeli tech stocks are now outperforming the S&P Global 1200 Information Technology Index YTD. This year BIGI is outperforming the local TA-125 Index by more than 7%, as the TA- 125 has missed out on the performance of some of Israel s top foreign-listed technology companies. Notable acquisitions continue: Pepsico announced that it would acquire Israel s SodaStream for $3.2 billion. This is the third major acquisition of an Israeli company this year. The two others are flavor and fragrance manufacturer, Frutarom, and producer of semiconductor and display manufacturing equipment, Orbotech. The technical outlook for BIGI indicates that it broke through a significant resistance level which had created a ceiling for Israeli stocks for nearly two-and-a-half years -- a very positive development for Israeli equities BlueStar wishes a very special Shana Tova v Metuka to our readers who are celebrating the Jewish New Year. FIGURE 1: BLUESTAR ISRAEL GLOBAL INDEX TEN-YEAR RELATIVE PERFORMANCE ENDING AUGUST JOSHUA KAPLAN, CFA Director of Research (646) jkaplan@bluestarindexes.com STEVEN SCHOENFELD Chief Investment Officer (646) sschoenfeld@bluestarindexes.com /31/2008 8/31/2010 8/31/2012 8/31/2014 8/31/2016 8/31/2018 BIGI TA-125 MSCI Israel Uncapped MSCI EM MSCI EAFE

2 Equity Market Performance and Economic Review In August, Israeli global equities, as measured by BlueStar s BIGI index and tracked by the VanEck Vectors Israel ETF (NYSE: ISRA ), gained 5.12%, outperforming MSCI EAFE by nearly eight percentage points. Two-thirds of BIGI constituents posted a positive performance in August, indicating a broadening of momentum throughout the Israeli market, as domestically-oriented Israeli companies joined their export-oriented peers, which have been rallying throughout A few of the key drivers of August s rally were: the announcement of Pepsico s acquisition of SodaStream (which accounted for 20% of BIGI s gain in August), increasing momentum in Israel s leading materials exporter, Israel Chemicals on the back of rising prices for fertilizer inputs produced by the company, and a rebound in the Israeli Shekel. The Bank of Israel in August announced it would keep its policy interest rate at the record low level of 0.10%, even though inflation has crept back into the lower bound of the Bank s target of 1%-3%. This indicates that a rise in interest rates before the end of 2018 is unlikely. Initial indications of third quarter GDP growth in Israel show a resumption of the strong pace of growth seen in the first quarter of the year. Israel s economy is expected to be one of the top two fastest-growing developed markets this year. At the end of 2017, BlueStar noted that the trend in housing prices presented both an opportunity and risk for Israel s economy and equity markets heading into In recent months, we noticed that the downtrend in housing prices was beginning to moderate and expressed the view that Israeli financial stocks were likely to rebound as a result. In August, Israel saw a resumption in new mortgage volume growth while mortgage rates remained stable. FIGURE 2: ISRAEL AND GLOBAL EQUITY BENCHMARK COMPARISON Benchmark August Return (%) YTD (%) BIGI TA-BIGITech MSCI Israel Uncapped TA-125 INDEX S&P MSCI EM (2.70) (7.18) MSCI EAFE (1.93) (2.28) Israel Domestic Exposure 8.33 (4.45) Israel Global Exposure Sources: BlueStar Indexes, Bloomberg LP YTD as of August 31, 2018 FIGURE 3: GLOBAL TECHNOLOGY STOCK INDEX COMPARISON Benchmark August Return (%) YTD (%) TA-BIGITech Dow Jones US Tech S&P Global 1200 Info Tech MSCI EM Tech (1.55) (4.71) Sources: BlueStar Indexes, Bloomberg LP YTD as of August 31, 2018 FIGURE 4: TOP AND BOTTOM BIGI PERFORMERS: AUGUST 2018 Positive Contributors (%) Negative Contributors (%) SodaStream Mazor Robotics Ltd (22.52) Israel Corp Ceragon Networks Ltd (19.45) Novocure Ltd Sky And Space Global Ltd (17.56) Stratasys Ltd Arotech Corp (14.10) Cyberark Software Vascular Biogenics Ltd (14.10) Compugen Ltd Plus500 Ltd (12.25) El Al Israel Airlines Radcom Ltd (10.95) Attunity Ltd Solaredge Technologies Inc (9.95) Varonis Systems Inc Fms Enterprises Migun Ltd (9.00) Israel Chemicals Ltd Sisram Medical Ltd (8.46) *Source: BlueStar Global Investors LLC; Currency-Adjusted returns in dollar terms FIGURE 5: ISRAELI EQUITY SECTOR PERFORMANCE AUGUST 2018 GICS Sector Period Return (%) Consumer Discretionary Materials Telecommunication Services Industrials 9.58 Consumer Staples 7.83 Real Estate 7.82 Energy 6.76 Information Technology 5.04 Financials 4.97 Utilities (0.74) Health Care (0.79) Finally, as Israel approached the Jewish New Year in early September, the government announced the nation s population exceeded 8.9 million citizens, re-confirming Israel s positive demographics. Page 2 of 6

3 Are Domestically-Oriented Israeli Stocks Poised for a Positive Reversal? At the end of July, globally-oriented Israeli stocks, as measured by the Solactive BlueStar Israel Global Exposure Index, IGEI, were outperforming domestically-oriented Israeli stocks, as measured by the Solactive BlueStar Domestic Exposure Index, IDEI, by more than 20%. At that time we noted that possible catalysts (exist) for a reversal in the IDEI include an overly-depressed sentiment on the Israeli consumer which have led to potential dislocations in Israeli retail stocks; rising dividend and buy-backs by Israeli banks; and a possible bottoming of the mini-correction in Israel s real-estate market. Last month, we also noted that our technical analysis of these Israel Economic Exposure Indexes showed the trend in IDEI underperformance was still underway, as the short and long-term moving averages of relative performance are still sloped downward and have not been broken leading to our conclusion that IGEI to continue to outperform in the near-term before a significant upside reversal of IDEI occurs. IDEI did underperform IGEI for the first two weeks of August before rallying, in relative terms, into the end of the month. This rally helped IDEI break through the 50-day moving average of relative performance, as demonstrated on the bottom chart, and the 50-day average is now beginning to slope upward. At the same time, the 200-day moving average of relative performance is still sloping down and could serve as short-term resistance which, we believe, will ultimately be broken. 160 IEEI Performance Relative to Israel Total Investable Market Index Since Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Israel Domestic Exposure Israel Global Exposure Israel Total Investable Market 160 IEEI Relative Performance Since Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Israel Domestic Relative to Israel Global 50-Day SMA 200-Day SMA Page 3 of 6

4 Technical Analysis of Israeli Equities Our technical analysis outlook for the overall Israeli equity market using the broad-based BIGI benchmark has turned bullish. With a strong showing in Spring and early Summer, followed by a brief consolidation, BIGI has finally broken through the parallel upper green trend lines, which served as resistance four times since early The short-term chart below, shows the breakout above all-time-highs set in mid-2015, illustrating how the index surpassed a key inflection point in August. With August s surge and confirmed breakout by BIGI above 2015 s highs, we now anticipate some consolidation before Israeli global equities commence an uptrend toward the next natural area of resistance, the upward-sloping parallel red trend lines, with potential for 10-15% gains by year-end or early Page 4 of 6

5 Technical Analysis of Israeli Tech Stocks Israeli Tech Stocks, as defined by BlueStar s BIGITech Index, are in a clear bullish trend, further confirmed by August s bullish price action and establishment of multiple all-time-high levels. This performance is especially impressive given volatility in global technology stocks and even US tech leaders. The BIGITech chart confirmed its bullish trend this past Spring with a major breakout to the upside, and the Summer s consolidation to test newly-established support further confirmed the breakout. The index is now comfortably above long-term resistance lines originating back to before the 2008/2009 financial crisis. Our measured target for BIGITech, first articulated last month, is 325, illustrated in the chart above, indicating more than 10% upside for the BlueStar index from current levels. Although the chart shows no major resistance, we recommend caution regarding overbought indicators and volatile global markets. Page 5 of 6

6 Disclosures This report was prepared by analysts of BlueStar Global Investors LLC (doing business as BlueStar Indexes ). Any opinions expressed herein are solely those of the author(s). BlueStar Global Investors LLC and BlueStar Indexes make no warranty, express or implied, as to the results to be obtained by any person or entity from the use of the indexes, trading based on the indexes, or any data included herein about investment in ETFs or funds tracking BlueStar s BIGI or BIGITech benchmarks, or for any other use, or about any other product mentioned in this document. The information contained herein is not intended as a recommendation to buy or sell any security and past performance is no guarantee of future results. The BlueStar Israel Technology ETF ( ITEQ ) is distributed by ETFMG Financial LLC, located at 30 Maple St, Summit, NJ, which is affiliated with ETF Managers Group LLC. Joshua Kaplan is a registered representative of ETFMG Financial LLC. BlueStar Indexes, is a provider of financial indexes used as the basis for the ITEQ Israel Tech ETF and the VanEck Vectors Israel ETF (ISRA ), as well as twelve ETNs and mutual funds domiciled, regulated and distributed in Israel. BlueStar is compensated by fund sponsors based on the level of assets under management in those investment vehicles. The authors are long, have trading authority over accounts which are long, or may enter into long positions in the following securities which are constituents of BlueStar s Indexes or track BlGI or BIGITech : Amdocs (DOX), Attunity (ATTU), CyberArk (CYBR). DSP Group (DSPG), Elbit Systems (ESLT), Teva Pharmaceuticals (TEVA), Israel Chemicals (ICL), BlueStar Israel Technology ETF (ITEQ ), and VanEck Vectors Israel ETF (ISRA ) BlueStar Global Investors, LLC Page 6 of 6