Global Asset Giants State Street and First Trust Eye Israel ETF Market
American asset management giants State Street and First Trust are preparing to enter Israel's ETF market, eyeing growth among local retail investors.
Two major global asset management giants are preparing to enter the Israeli mutual fund and ETF market. According to information obtained by Calcalist, American firms State Street and First Trust have been working in recent months to enter the Israeli exchange-traded fund market.
State Street manages the SPDR brand in the United States with a volume of $6.2 trillion, ranking fourth globally behind Fidelity, BlackRock, and The Vanguard Group. First Trust is a smaller firm managing $340 billion, and market estimates suggest its chances of entering the local market are lower. Both companies are advancing legal and regulatory procedures to register ETFs tracking international indices for trade on the Tel Aviv Stock Exchange, mirroring moves made in recent years by BlackRock and Invesco.
Quiet Preparations and Regulatory Hurdles
Far from the public eye, both companies are advancing their entry into Israel and are currently avoiding public announcements. The backdrop includes fears that publicizing the planned activity in Israel might spark protests from organizations politically opposed to Israel operating in the US and Europe. For international investment institutions exposed to public and political pressures across many markets, this is an additional consideration when deciding to expand operations in Israel.
Registering a foreign fund for trade on the local bourse, known as an "Irish fund," requires meeting stringent regulatory requirements, working with the Israel Securities Authority, and setting up operational infrastructure in Israel. For large American corporations, this is a process that can take years and require investments of millions of shekels before even registering the first fund for trade.
The model these two companies seek to adopt has already proven itself in Israel, with 40 different funds managing over 30 billion NIS. BlackRock was the first to enter the market in August 2019, registering foreign funds in Tel Aviv under the iShares brand. Today, iShares funds manage about 20 billion NIS. BlackRock is the largest ETF manager in the US, with $4.6 trillion. In February 2022, Invesco joined them, registering Irish ETFs for trade on the local exchange, products that trade concurrently on European exchanges such as London and Frankfurt. Invesco is the fourth-largest ETF brand in the United States, with nearly $1 trillion, and manages 10 billion NIS in ETFs in Israel. For both giants, the largest fund is one tracking the American S&P 500 stock index.
Surging Retail Investor Interest
If the two new players enter the Israeli market, they will pose significant competition in the local ETF sector, which serves as a major growth engine for domestic investment houses. Currently, the mutual fund industry manages 857 billion NIS as the primary medium- and short-term savings vehicle for Israeli savers, while the ETF sector manages 222.4 billion NIS.
Foreign entities are barred from offering Israeli-issued funds. The new competition may exert additional pressure on management fees for both local and foreign funds, especially since Irish funds feature low management fees of up to 0.1% annually. One of the primary drivers attracting international ETF managers to Israel is the rapid growth in retail investors operating in the capital market. According to data presented by Israel Securities Authority Chairman Sefi Zinger, 400,000 new trading accounts have been opened in Israel in recent years.
Retail investors are the primary target audience for foreign funds: according to Invesco, up to 75% of activity in its funds traded in Tel Aviv comes from retail investors rather than institutional bodies, which can purchase ETFs directly on foreign exchanges anyway. For investment giants like State Street, this is a rapidly growing market enabling them to reach a broad public through the listing of existing funds without establishing dedicated Israeli products.
Existing Ties and Official Responses
This would not be State Street's first investment activity in Israel. The American giant has an ongoing partnership in savings policies with Clal Insurance Enterprises Holdings. In 2024, the two entities launched a joint policy intended to grant investors sophisticated exposure to foreign markets across three tracks: general, equities, and bonds. However, in the initial phase, State Street is expected to launch primarily index-tracking funds on major indices, similar to existing players like BlackRock and Invesco.
State Street Investment Management stated in response: "We are constantly evaluating opportunities to offer our funds in the various regions where we operate, including Israel." First Trust did not provide a response.
