Uncovering alpha in unexpected areas

Gross domestic spending on R&D as a total of GDP

For a country of eight million people, Israel has long been punching above its weight in the technology sector. Israel’s expertise is certainly recognised by the global giants of technology, with Intel, Microsoft, Google and many others operating significant R&D centres there.

In the third quarter of 2014 alone, 170 Israeli high-tech companies attracted US$701m of capital, with 81% of that money coming from overseas investors.What’s more, other than the US, only China has more companies listed on the tech-heavy NASDAQ exchange than Israel’s 90, worth a total of US$40bn, as at end of June 2014.2

Fortunately there are also companies of such providence listed in the UK, which means investors can access great tech firms safe in the knowledge of a high level of corporate governance and regulatory scrutiny. The fact they are Israeli and perceived as ‘higher risk’ means they are trading at lower valuations than their fundamentals may warrant. Hopefully, over time this discount will close as their business models and resilience is further appreciated by the wider market, but in the meantime the cash generative nature of these companies contributes significant dividend income.

Paul Stephany, Newton

Sources:
1 IVC_HPMG, High-tech capital raising survey, Q3 2014
2 Forbes, 29 June

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