The biggest news in the Israel Technology space in Q1 2019 was the 12/31 announcement of Nvidia (NVDA)’s $6.9 billion acquisition of Mellanox Technologies (MLNX), designer of and developer of high-performance interconnected products. Rumors of the acquisition began circling late last year as Nvidia faced competition from Xilinx and Intel, who also expressed interest in MLNX.
Mellanox has been a staple of Israel’s technology sector for decades. The company is one of the world’s leading suppliers of high-powered computing hardware and datacenter software, having introduced the world’s first 100 gigabit per second end-to-end Ethernet solutions for data centers; this helped enable the emergence of the internet then cloud computing and now machine learning and 5G communication technology.
Nvidia has been one of the world’s top performing semiconductor stocks. The company specializes in graphic processing chips which are currently sold predominantly into the video gaming market but increasingly used for embedded machine learning applications as well as cloud-based machine learning in the data center.
The two entities combined form a formidable competitor for the likes of Intel. The market clearly approved of this acquisition, as Mellanox’s share price rose by 49% following the announcement.
Nvidia’s CEO has committed to growing its presence in Israel and is seeking another acquisition of an Israeli company in the embedded AI-chip space. This is the eight acquisition of an Israeli tech company in a two-year period which began with Intel’s acquisition of Mobileye.
Looking at potential upcoming IPOs: just as Israeli companies are acquired; we expect others to go public in the coming months. With that said, there are several artificial intelligence-related companies expected to come to market this year — the most notable is the taxi-hailing app Gett. With the recent IPO’s of Lyft and Uber, the ride-sharing segment is likely to seek a lot of investor attention in the coming quarters. Gett is the Israeli participant in this trend.
The BlueStar Israel Technology ETF (ITEQ) returned 18.21% for the quarter ended March 31, 2019, which was in line with its benchmark index and ahead of the overall global technology sector.
At the sector level, ITEQ’s 73% weight to Information Technology (+21.6%) was the largest positive contributor to performance, followed by Health Care (+24.1) and Industrials (+15.4%). The lone Financials company in the portfolio, a 2% weighting to Plus500 ltd (-40.6%), made Financials the only negative-performing sector.
At the security level, ITEQ’s performance was exceptional across nearly the entire portfolio, with positive contributors led by Cyberark Software (CYBR, +60.6%), Wix.com (WIX, +33.8%), and Mellanox (MLNX, +28.1%). Negative contributors to performance included Plus500 (PLUS LN, -40.6%), Amdocs (DOX, -7.1%) and Urogen Pharma (URGN, -14.2%).
In terms of fundamental factor performance, factors contributing positively were exposures to the global markets, global software and the style factors Trade Activity and Growth. On the negative side, detractors included exposure to the regional Israel factor, as well as the style factors Size and Momentum.
Breaking down the style factors, ITEQ’s performance was helped by exposure to the Trade Activity, Earnings Variability and Growth factors; while Size and Volatility were the main detractors in Q1.
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477), or by visiting www.iteqetf.com. Read the prospectus carefully before investing.
Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility. Investment in securities of Israeli companies involves risks that may negatively affect the value of your investment in the Fund. Among other things, Israel’s economy depends on imports of certain key items, such as crude oil, coal, grains, raw materials and military equipment. Foreign investing involves special risks such as currency fluctuations and political uncertainty. Funds that invest in smaller companies may experience greater volatility. Funds that emphasize investments in technology generally will experience greater price volatility. The Fund’s return may not match or achieve a high degree of correlation with the return of the BIGITech® Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Index. Diversification does not guarantee a profit, nor does it protect against a loss in a declining market.
The BlueStar Israel Global Technology Index (BGTH) considers all Israeli companies regardless of listing venue and allows for the inclusion of companies operating in a range of industries from information technology to biotechnology to clean and sustainable agriculture and energy technology.
The Fund is distributed by ETFMG Financial LLC. ETF Managers Group LLC and ETFMG Financial LLC are wholly owned subsidiaries of Exchange Traded Managers Group LLC (collectively, “ETFMG”). ETFMG Financial LLC is not affiliated with BlueStar Indexes.