What’s in Our Portfolio?

investment-portfolioBy Joseph J. Levin

This September, Qatar, the major state sponsor of Hamas, officially received a larger place in global investment portfolios, including in most of the endowments of our Jewish communal/pro-Israel organizations.

And while the mechanics of the global financial markets might be mysterious to most, the impact of Qatar entering the FTSE Emerging Market benchmark, for example, is straightforward and reinforces a similar decision made by the MSCI Emerging Market Index two years ago:

New investments of at least $700 million, and more likely $1.5-$2 billion, will likely flow into Qatari companies. And for investors who do not actively avoid it, they will be complicit in this realignment whether they intended to or not.

This means that most Jewish or pro-Israel investors will have even more of their portfolios (currently estimated at about 4x on average) in countries like Qatar, UAE, Malaysia, and Indonesia that are overt or passive enemies of Israel * than in Israel itself.

If this fact surprises you, you’re not alone. Exposure to Israeli public companies has remained mostly hidden within our collective portfolio. In 2010 a similar change in global classifications promoted Israel form “emerging” to the pinnacle “developed” market of international investments. With this recognition, Israel became a victim of its own success, essentially becoming the proverbial “small fish in a much bigger sea” with the unintentional impact of Israeli stocks being diluted in our collective portfolio by ~50% (to simply match new index weights.)

How can we ensure we’re not working in cross-purposes to our mission or unintentionally divesting of Israeli assets?

Many organizations employ a policy on Israel-related programming by its grantees explicitly designed to ensure that grant dollars that emanate from its annual fundraising, communal endowment, and donor advised funds do “not fund organizations that through their mission, activities or partnerships: advocate for, or endorse, undermining the legitimacy of Israel as a secure independent, democratic Jewish state.”

And while this is important, it isn’t enough. After all, shouldn’t we apply a similar level of scrutiny to the dollars invested within our endowments and charitable vehicles that we’ve been entrusted to steward, the very same assets that our grant making dollars are derived from?

I believe the answer is a resounding yes, and, especially if you’re a board member or executive, so should you. It is our collective responsibility to take action.

The good news is this incongruity can be solved with proactive effort and a decision to “actively weight” Israel and “underweight,” or even altogether remove, the anti-Israel elements from our communal investments.

Here’s a simple way to approach it:

1. Assess your portfolio by asking the right questions: How much Israel is in our portfolio? What exposure do we as an organization have in companies or countries that are working against our pro-Israel mission? What message does our organization or foundation’s investments convey about our community or the values of the donor/family? How will aligning our investments with our values make us more attractive to younger donors or to legacy givers?

2. Review your investment policy statement: Simply stated, if Israel is in your mission, then your portfolio should, at the very least, not be working against it! Update your investment policy statement to reflect this intention (you can even do this through a board directive directly to your investment committee) and disaggregate Israel from the sea of non-US countries your organization has exposure to.

3. Invest in Israel: Invest, first and foremost because it’s a good investment. Israel stands on its own merit and has historically outperformed most international equity benchmarks over the past three, five, and ten years**. In fact research shows that adding incremental exposure to Israeli equities and Israel Bonds has historically reduced volatility and increased the returns of globally diversified portfolios.***

And while past performance is not always an indication of future success, there are multiple indicators that the strength of the Israeli economy and performance of its world-class companies will continue. Explore the growing broad-based indexing approach to gain low-cost exposure to Israeli public equities, in addition to the more traditional Israeli Bonds and riskier private equity or venture capital allocations.

Consider that the antidote to divestment is investment and that investing in Israeli public companies is a powerful way to fight the economic Boycott, Divestment and Sanctions (BDS) movement – an assertion that just scratches the surface of a theory that merits its own dedicated discussion.

4. Work as a community: Ask the Federation leadership in communities like Miami, Chicago, Oakland, Rhode Island, San Antonio, and Richmond – all of whom have taken tangible steps in furthering their portfolio’s connection to Israel via a dedicated allocation to Israeli equities – for assistance and guidance.

The time has come for the Jewish and pro-Israel community to embrace the values-based impact investing trend which is on the rise in the world of philanthropy. For those who support Israel with their charitable donations and for organizations that support Israel with their grant making – we must be certain all of our investments, endowments and charitable vehicles reflect that same commitment to strengthen the Jewish state.

This is a powerful arrow in our communal quiver. The good news is that the assets are already there waiting to be deployed.

It all starts with you asking the question, “What’s in our portfolio?”

Joe Levin is the Chief Investment Strategist at BlueStar Indexes® and former Chief Development Officer at the San Francisco-based Jewish Community Federation and Endowment Fund.

* Qatar and UAE’s entry into the FTSE and MSCI Global Benchmarks ensure that the two countries alone currently attract approximately 1.5% of Emerging Market assets
**BlueStar Indexes® quarterly index fact sheets contain historical return, risk and correlation statistics. These reports are available at bluestarindexes.com/our-indexes/
***BlueStar Indexes® has produced asset allocation research which can be accessed at bluestarindexes.com/research/