Continued Momentum for Israeli Exporters and Tech in April

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1 May 9, 2018 ISRAEL EQUITY REVIEW & OUTLOOK Continued Momentum for Israeli Exporters and Tech in April Highlights What s Inside 1. Highlights 2. April performance highlights 3. Sector performance contributors 4. Technical Analysis The BlueStar Israel Global Index gained 0.5% in April, but is still down 0.40% yearto-date; Israeli technology stocks, as defined by The BlueStar Israel Global Technology Index (BIGITech ), gained 1.3% in April, bringing the year-to-date gain up to 3.7%; 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 three global thematic equity indexes. JOSHUA KAPLAN, CFA* Director of Research (646) jkaplan@bluestarindexes.com STEVEN SCHOENFELD* Chief Investment Officer (646) sschoenfeld@bluestarindexes.com Israel s Q GDP growth came in stronger-than-expected despite a mild slowdown in Israel s housing market, as services exports continue to grow. These trends have resulted in a 1.2% year-to-date gain in the Solactive-BlueStar Israel Global Exposure Index, compared to a more than 10% pullback in the Solactive BlueStar Israel Domestic Exposure Index; The BlueStar Israel Global Index is outperforming the local TA-125 by roughly 5 percentage points in 2018 as the TA-125 has missed out on the performance of some of Israel s top foreign-listed technology stocks such as Mellanox Technologies; The Israeli Shekel has depreciated nearly 5% against the USD and 4% against the EUR since the start of the year, providing a tailwind to Israeli exporters; The technical outlook for BlueStar s Israel indexes indicates that Israeli equities continue to consolidate at key inflection points with several bullish and bearish forces yet to be resolved. FIGURE 1: BLUESTAR ISRAEL GLOBAL INDEX TEN-YEAR RELATIVE PERFORMANCE ENDING April BlueStar Israel Global Index Ten Year Relative Performance Ending April /30/2008 4/30/2010 4/30/2012 4/30/2014 4/30/2016 4/30/2018 BIGI TA-125 MSCI Israel Uncapped MSCI EM MSCI EAFE

2 April Performance Review In April, Israeli global equities, as measured by BlueStar s BIGI index and tracked by the VanEck Vectors Israel ETF (NYSE: ISRA ), gained 0.55%, underperforming MSCI EAFE by roughly two percentage points. Just 30% of BIGI constituents contributed to April s advance indicating deteriorating market internals. 50% of BIGITech constituents posted gains in April. Divergence in the performance of the BlueStar Israel Global Index and the TA-125 continued to play out in April, as the TA- 125 underperformed by roughly 1.5% in April and is underperforming nearly 5% for 2018 year-to-date. The primary reason for the performance differential is that BIGI has a relatively higher weight in globally-oriented companies (represented by the Solactive BlueStar Israel Global Index, IGEI ) than domestically oriented companies (Solactive BlueStar Israel Domestic Exposure Index, IDEI ). FIGURE 2: ISRAEL AND GLOBAL EQUITY BENCHMARK COMPARISON Benchmark April Return (%) YTD (%) BIGI 0.55 (0.41) BIGITech MSCI Israel Uncapped 0.93 (4.38) TA-125 (1.11) (4.48) S&P (1.06) MSCI EM (0.31) (1.31) MSCI EAFE 2.46 (0.05) Israel Domestic Exposure Index (4.46) (10.12) Israel Global Exposure Index Sources: BlueStar Indexes, Bloomberg LP FIGURE 3: GLOBAL TECHNOLOGY STOCK INDEX COMPARISON Benchmark April Return (%) YTD (%) BIGITech Dow Jones US Tech (0.12) 6.93 S&P Global 1200 Info Tech MSCI EM Tech (1.66) (1.16) Sources: BlueStar Indexes, Bloomberg LP FIGURE 4: TOP AND BOTTOM BIGI PERFORMERS: April 2018 Positive Contributors (%) Negative Contributors (%) Novocure Ltd Protalix Biotherapeutics Inc (24.06) Plus500 Ltd Compugen Ltd (21.35) Attunity Ltd Fluence Corp Ltd (20.27) Delek Us Holdings Inc Space Communication Ltd (19.92) Israel Corp Limited/The Intec Pharma Ltd (16.73) Kornit Digital Ltd Sky And Space Global Ltd (14.01) Urogen Pharma Ltd El Al Israel Airlines (13.46) Xlmedia Plc Clal Insurance Enterpr Hldgs (12.71) Safecharge International Gro Ashtrom Properties Ltd (12.56) Silicom Ltd Suny Cellular Communication (11.33) *Source: BlueStar Global Investors LLC; Currency-Adjusted returns in dollar terms FIGURE 5: ISRAELI EQUITY SECTOR PERFORMANCE April 2018 GICS Sector Period Return (%) Materials 6.49 Energy 3.54 Health Care 2.17 Utilities 1.10 Consumer Discretionary 0.88 Information Technology 0.35 Financials (1.32) Real Estate (1.65) Industrials (2.02) Telecommunication Services (3.07) Consumer Staples (5.74) Page 2 of 6

3 Globally-oriented sectors like Materials, Health Care, Consumer Discretionary and Information Technology did well in April, while domestically-oriented sectors like Financials, Real Estate, Telecommunication Services and Consumer Staples all experienced losses. Materials Frutarom, Israel s food-tech company gained 5% in April after management announced it was exploring a sale of the company. Indeed, on May 7 the company announced it would be acquired by larger, international rival, International Flavors & Fragrances of the U.S. Israel Corp and Israel Chemicals gained 14% and 6.5%, respectively in April. Consumer Discretionary Israeli consumer discretionary stocks posted a positive performance in April on the back of three globallyoriented companies. Taptica International, an Israeli firm specializing in digital marketing solutions posted a gain of just over 10% for the month, while SodaStream gained 2.9% and Avgol Industries gained 3.6%. Avgol Industries supplies the global hygiene market with non-woven fabrics used in baby and adult diapers as well as feminine hygiene products. Consumer Staples Consumer Staples, which is made up of domestically-oriented supermarket and food manufacturing companies, was the worst-performing group of Israeli stocks in April. Israeli supermarket operators Rami Levy and Shufersal were hit particularly hard and were down 8.3% and 6.7%, respectively. 150 BlueStar 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 Page 3 of 6

4 Technical Analysis of Israeli Equities As with last month, our technical analysis outlook for the broad Israeli equity market using long-term BIGI chart has not changed much. Both the long-term and short-term charts are similarly inconclusive. In the long-term chart, above, the thin green trend lines have not been broken, and have been tested four times since we first drew them at the end of But gains have been limited, just as consistently, by the thin red trendlines which were former support-turned-resistance. The action occurring between those thin trend lines could be either a bearish consolidation pattern or a bullish trend which originated back in mid-2016 after a bounce off the thick green long-term support lines. We will not be sure which until there is a substantial breakout or breakdown above/below resistance or support. The short-term chart, presented below, is slightly more conclusive and leads us to a more bullish technical view on BIGI. In January 2017, BIGI broke out from a bullish triangle pattern and had since tested the break out area (horizontal green trend lines) three times. It appears now that BIGI could test this breakout area of for the fourth time. Whether those horizontal lines and the upward sloping trend lines hold or not will be critical for the short-term outlook. The BIGI chart remains bullish since no trendlines have been broken in a bearish manner. However, we are close to several critical inflection points which might keep technical traders on the sidelines until the consolidation resolves itself. Page 4 of 6

5 Technical Analysis of Israeli Tech Stocks Last month we pointed out that even though BlueStar s BIGITech Index made a new all-time high in February, it brought the index right up into an area where multiple - and significant - resistance points were converging. Thus, similar to BIGI, BIGITech is stuck between support and resistance lines which have both been tested and held several times over the last two years. The medium-term chart below shows the BIGITech index with its 50 and 200-day moving averages. The 200-day average has been tested and held four or five times since Q As of April 4, the index was resting just above the 200-day average, so again the chart is inconclusive and technical traders might be sidelined until the charts resolve themselves one way or another: the index could consolidate above the 200-day average and green trend lines before a continuation higher, or short-term momentum could cause those support areas to be broken. One way or another, BIGITech is likely at an inflection point, and warrants close observation. 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 seven 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