Consultation on the
Regional Classification of
the MSCI Israel Index
DECEMBER 2021

This consultation may or may not lead to the implementation of any or all of the proposed changes in the highlighted or
any other MSCI indexes. Consultation feedback will remain confidential. MSCI may publicly disclose feedback if
specifically requested by specific market participants. In that case, the relevant feedback would be published together withthe final results of the consultation.
© 2021 MSCI Inc. All rights reserved.
Information Classification: GENERAL

Please refer to the disclaimer at the end of this document.

Summary• The MSCI Israel Index was reclassified from Emerging Markets to Developed Markets coinciding with the
May 2010 Semi-Annual Index Review after a public consultation that began in July 2008.
– The index was included in the MSCI World Index, the MSCI EAFE Index, and the MSCI Europe & Middle East Index.

• On June 2012, a survey was launched as part of the MSCI 2012 Annual Market Classification Review
requesting feedback on the regional classification of the MSCI Israel Index and whether it should be partof the European investment opportunity set.
–Based on feedback received from international institutional investors, most of them did not consider Israel to be partof their European investment opportunity set.
–As a result, MSCI announced as part of the MSCI 2013 Annual Market Classification Review that Israel’s regionalclassification was to remain unchanged.

• MSCI is now seeking feedback from market participants on whether they still consider the MSCI Israel
Index as part of the Middle East investment opportunity set in terms of index inclusion or if it should beregionally classified elsewhere.
• MSCI invites feedback from market participants on or before January 31, 2022 and will announce theresults of the consultation on or before February 28, 2022. To participate in the consultation, pleaseprovide your feedback through an online survey available on: https://www.msci.com/consultation-Israel

Information Classification: GENERAL

2

Current MSCI Regional Classification• MSCI classifies Israel as Middle East as per the Index Country Membership.
– Israel is the only market classified as Middle East in the MSCI World Index.
– The MSCI Israel Index is not included in the MSCI Europe nor MSCI Pacific Indexes, as it is not classified in these regions.
– However, the MSCI Israel Index is included in the MSCI EAFE and the MSCI Europe & Middle East Indexes, with the latterbeing launched as part of the discussions with the global investment community in 2010.
Related MSCI Regional Indexes

Regional Classification*

Index nameMarkets

EuropeDM Europe

Europe & Middle East

DM Europe + Israel

Pacific

DM APAC

EAFE

DM Europe + DM APAC + Israel

GCC Countries

EM Middle East + Bahrain + Oman

Arabian Markets Combined

EM Middle East + Bahrain + Jordan+ Oman + Egypt + Morocco +Tunisia

Europe

DM: Austria, Belgium, Denmark, Finland, France, Germany, Ireland,
Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland,
United Kingdom
EM: Czech Republic, Greece, Hungary, Poland, Russia, Turkey

APAC

DM: Australia, Hong Kong, Japan, New Zealand, Singapore
EM: China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan,
ThailandMiddleEast

DM: Israel
EM: Kuwait, Qatar, Saudi Arabia, United Arab Emirates
FM: Bahrain, Jordan, Oman*MSCI’s market classifications as of December 2021.

Information Classification: GENERAL

3

Key Findings• The MSCI Israel Index has more economic exposure to Europe than to the Pacific andMiddle East regions, however, the market’s largest economic exposure comes from North
America.
• The information technology sector index weight has relatively increased in the MSCI Israel
Index in recent years, making it more aligned to the Europe and Pacific Indexes in terms ofactive sector exposure.
• When looking at the regional and country level correlations, both in USD and local currency
levels, Israel is relatively uncorrelated to the Pacific, Europe and EM GCC clusters.
• The 3-year pairwise rolling correlations between weekly index returns show a higher
absolute correlation and similar co-movements through time between the MSCI Israel Index
and the World, Europe and Pacific Indexes, in contrast to the EM GCC Index, both in USD
and local currency levels.

Information Classification: GENERAL

Sector Analysis & Economic Exposure• Health Care’s index weight predominance has declined since 2016.
• IT’s share has been steadily rising since the same period, while financials preserve the second position byweight in the index.
Source of Revenue of the MSCI Israel Index (November 2021)
40%

100

34.3%

32.1%

Sector weight in MSCI Israel Index

Economic Exposure to Region

35%

30%
25%
20%
15%

10.5%
10%
5%

1.5%
Pacific Revenue

60

0

20

0.5%

0%

Domestic Revenue European Revenue

0

GCC Countries
Revenue

North America
Revenue

Data as of November 30, 2021, using FY2020 consolidated revenues in Israeli Shekels

0
0

0

0

10

11

Consumer iscretionar
Consumer Staples
Energ
inancials

Source of revenue comes from MSCI Economic Exposure data.
Please see the disclosure at the end of this document regarding simulated and back tested data.

Information Classification: GENERAL

12

1

1

1

Health Care
Industrials
Information Technolog

16

1

1

1

20

21

Materials
eal Estate
Telecommunication Services

5Sector Comparison Analysis• The below exhibit shows the active sector exposureof the MSCI Israel Index against select regional
indexes as of November 30, 2021.
Active Sector Exposure

MSCI Israel Index

MSCI Europe Index

MSCI Pacific Index

MSCI EM GCC
Countries Index

Energy

0.0%

4.6%

1.1%

6.2%

Materials

5.8%

2.1%

0.8%

9.6%

Industrials

3.7%

11.1%

14.1%

-1.4%

Cons. disc.

0.0%

11.7%

15.0%

1.3%

Cons. stap.

0.0%

12.8%

6.0%

1.6%

Health care

8.6%

6.0%

0.7%

-7.5%

Financials

35.3%-19.6%-16.9%

21.4%

IT

43.0%

-34.2%-31.7%-43.0%

Comm. serv.

0.0%

3.7%

6.6%

10.1%

Utilities

0.0%

4.3%

1.9%

1.7%

Real estate

3.7%

-2.4%

2.3%

-0.1%

Standard deviation of active sector exposures

Sector Weight• The exhibit on the right shows the yearly standard deviationof all active sector exposures between Israel and eachregional index, plotted during the relevant history.

MSCI Europe Index
MSCI aci c Index
MSCI EM CC Countries Index

0.2

0.2 0
0 . 220 . 200
0.1
0.1 0

0 . 120 . 100
0

0

0

10

11

12

1

1

1

16

1

1

1

20

21

Snapshot as of November 30, 2021
Snapshot as of November 30, 2021

Please see the disclosure at the end of this document regarding simulated and back tested data.

Information Classification: GENERAL

6

Market Accessibility
Market Accessibility Assessments

Median* Market Accessibility Ratings (June 2021)
Criteria

Israel

EM Middle East

DM Europe

EM Europe

DM APAC(Pacific)

EM APAC

Investor qualification requirement

++

++

++

++

++

++

Foreign ownership limit (FOL) level

++

-/?

++

++

++

+

Foreign room level

++

++

++

++

++

++

Equal rights to foreign investors

++

+

++

+

++

+

Capital flow restriction level

++

++

++

++

++

++

++

++

++

++

++

+

++

+

++

++

++

++

++
+
+
++
++
++
++
++
++

++
++
+
+
++
++
-/?
-/?
-/?

++
++
++
++
++
++
++
++
++

+
+
+
++
++
++
++
+
+

++
++
++
++
++
++
++
++
++

++
++
+
++
++
++
+
+
+

++

++

++

++

++

++

++

+

++

++

++

+

Foreign exchange market
liberalization level
Investor registration & account setup
Market regulations
Information flow
Clearing and settlement
Custody
Registry / Depository
Trading
Transferability
Stock lending
Short selling
Availability of investment
instrument
Stability of institutional framework* The median for each criteria was calculated b ordering each market’s ratings from highest to lowest.
Based on the MSCI 2021 Global Market Accessibility Review Report.

Information Classification: GENERAL• Israel has a ++ rating for all criteria
except for:– Information Flow: Corporate actions
informationisoccasionally
incomplete or not always disclosed
in a timely manner.

– Clearing and Settlement: The
settlement cycle is set at T+1 andthe DVP mechanism is different
from international standards.

• Trading at the Tel Aviv Stock
Exchange occurs from Sunday toThursday.
7

Index Levels (USD Levels)• Gross USD index levels for the MSCI Israel Index and other select regional indexes are shown below.
00

Index evels

ase 100

0

00

2 0

200

1 0

100

0
11

12

E
E

1

E
E

1

1

16

1

IS
MI

E E ST

1

1

20

21

E
CI IC

Local index levels are available in the appendix.
The MSCI Europe & Middle East Index was launched on May 27, 2010.
Please see the disclosure at the end of this document regarding simulated and back tested data.

Information Classification: GENERAL

8Key Metrics
Key metrics
MSCI Israel Index

MSCI Europe & Middle East Index

MSCI Europe Index

MSCI Pacific Index

Total return* (%)

2.1

7.9

8.0

7.2

Total risk (%)

18.9

16.9

16.9

13.6

Return / risk

0.11

0.47

0.47

0.53

Sharpe ratio

0.08

0.44

0.44

0.49

Active return (%)

0.0

5.8

5.9

5.1

Tracking error (%)

0.0

16.4

16.6

15.6

Information Ratio

0.35

0.36

0.33

1.00

0.52

0.52

0.42

Number of constituents***

11

455

444

462

Turnover** (%)

6.5

2.3

2.2

2.3

Historical beta

Price to book***

1.6

1.7

1.7

1.4

Price to earnings***

15.5

16.3

16.3

16.3

Dividend yield*** (%)

2.2

3.4

3.4

2.7

Period: May 31, 2010 to November 30, 2021. * Gross returns annualized in USD ** Annualized one-way index turnover over index reviews *** Monthly averages

The MSCI Europe & Middle East Index was launched on May 27, 2010.
Please see the disclosure at the end of this document regarding simulated and back tested data.
MSCI IndexMetrics®.

Information Classification: GENERAL

9

Rolling Correlations (Local Returns)• The exhibit below shows the 3-year pairwise rolling correlations between weekly gross local index
returns of the MSCI Israel Index against select standard regional indexes.

0.

Correlation

0.6
0.
0.
0.
0.2

0.1
0.0
10

11

12
orld
Europe

1

1

1

16

1

aci c

The GCC Countries International Indexes were launched on June 4, 2015, with index levels history since June 2014.
Rolling correlations in USD index returns are available in the appendix.
Please see the disclosure at the end of this document regarding simulated and back tested data.

Information Classification: GENERAL

1

1

20

21

EM CC Countries

10Regional and Country Level Correlations (Local Returns)• The correlation matrices below depict the correlations in local gross monthly returns for each period
between every country and regional standard index.
DM European
Cluster

DM Asian
Cluster

EM GCC
Cluster

DM European
Cluster

DM Asian
Cluster

EM GCC
Cluster

Correlation
1.0

NETHE
N S
E M N
NCE
S IT ENS E EN
I E N
NITE
IN
M
IN N
E I M
IT
S IN
ENM
N
ST I
T

0.

0.

0.

0.

IT

I
I
S

T

TES
EMI

ST I
N

T

IN
S

ENM

I M
IT
E

M

N

N

IN

IN

I E

N

NCE

S E ENS IT E

N S
NETHE

E
NE

H N

NITE

NITE

NITE

E M N

0.2

N

IT

TES
I
IT
T

T

TES

EMI
I

EMI

N

IN
S

I E

I M
T

E

N

ST I

IN

IT

N

S E ENN

E M N

S IT E

M

N S

IN

NETHE

NITE

NCE

ENM

N

N
E
NE

I
ST

SIN

H N

N

E

S

0.6

N

NITE

0.

E

NCE
ENM
NITE
IN
M
NETHE
N S
S IT ENE M N
S E EN
IT
N
IN N
ST I
E I M
T
S IN
I E N
NITE
EMI TES
T
IT

E

N

NE

I

E

0.

ST

NE

I
E
N
N
N

ST
SIN
H N

E
N
I
N
N

SIN

SIN
H N
ST

The Saudi Arabia and GCC Countries International Indexes were launched in June 2015. Indexes are ordered from highest to lowest within their region depending on their correlation level with the MSCI Israel Index.
For simplicity, market classifications as of December 2021 were historically applied for the analysis.
Regional and country correlations in USD index returns are available in the appendix.
Please see the disclosure at the end of this document regarding simulated and back tested data.

Information Classification: GENERAL

11

Discussion Points• rom an investment opportunit set perspective, how do ou view Israel’s regionalclassification in terms of index inclusion? As part of the Middle East, European, Asianor other investment opportunity sets?
• In general, how do you consider regional classifications? In terms of geographicalproximity, shared macroeconomic characteristics, or other?
• Should MSCI change the index regional classification for the MSCI Israel Index?
MSCI invites feedback from market participants on or before January 31, 2022 and will
announce the results of the consultation on or before February 28, 2022. To participate in the
consultation, please provide your feedback through an online survey available on:https://www.msci.com/consultation-Israel
Information Classification: GENERAL

12

Appendix

Information Classification: GENERAL

Index Levels (Local Levels)• Gross local index levels for the MSCI Israel Index and other select regional indexes are shown below.

00

Index evels

ase 100

0

00

2 0

200

1 0

100

0
11

12
E
E

1
E
E

1

1

16

1
IS

MI

E E ST

1

1

20

21

E
CI IC

The MSCI Europe & Middle East Index was launched on May 27, 2010.
Please see the disclosure at the end of this document regarding simulated and back tested data.

Information Classification: GENERAL

14

Regional and Country Level Correlations (USD Returns)• The correlation matrices below depict the correlations in USD gross monthly returns for each period
between every country and regional standard index.
DM European
Cluster

DM Asian
Cluster

EM GCC
Cluster

DM European
Cluster

DM Asian
Cluster

EM GCC
Cluster

Correlation
1.0

I
E
N
N
N

0.

NETHE
N S
E M N
S E ENNCE
S IT E
N
NITE
IN
M
I E N
E I M
IN N
IT
S IN
N
ENM
ST I
T

0.

0.

IT

I
I

NITE

S

T

TES
EMI

ST I

T

ENM

IN
S
N

N
IN

IT

I M
E

M

N

N

NCE

I E

IN
NITE

S IT ES E EN

N S

E M N

NETHE

NE

ST

N

N

IT

0.2

T

N

TES
NITE

I E

0.

TES
I
IT
T

EMI

IN
T

I M

S

E

N

ST I

N
IN

S IT E

M

N S

IT
IN
NITE

N

NETHE

S E EN

E M N

NCE

ENM

N
H N

N

N
E
NE

ST

SIN

I

E

S

EMI
I

0.

E

NITE

0.6

E

NCE
ENM
S E EN
E M N
N
NETHE
N S
NITE
IN
M
IT
IN N
S IT E
N
ST I
E I M
S IN
T
I E N
NITE
EMI TES
T
IT

0.

N

N
N
N

H N

E

I

ST
SIN
H N
NE
E

I

SIN

ST
SIN
NE
E
H N

The Saudi Arabia and GCC Countries International Indexes were launched in June 2015. Indexes are ordered from highest to lowest within their region depending on their correlation level with the MSCI Israel Index.
For simplicity, market classifications as of December 2021 were historically applied for the analysis.
Please see the disclosure at the end of this document regarding simulated and back tested data.

Information Classification: GENERAL

15

Rolling Correlations (USD Returns)• The exhibit below shows the 3-year pairwise rolling correlations between weekly gross USD
index returns of the MSCI Israel Index against select standard regional indexes.

0.

Correlation

0.6
0.
0.
0.

0.2
0.1
0.0
10

11

12
orld
Europe

1

1

1

16

1

aci c

The GCC Countries International Indexes were launched on June 4, 2015, with index levels history since June 2014.
Rolling correlations in local index returns are available in the appendix.
Please see the disclosure at the end of this document regarding simulated and back tested data.

Information Classification: GENERAL

1

1

20

21

EM CC Countries

16Evolution of the MSCI Israel Index• In 2021, the predominant sector is IT, with a weight of 37.3%, followed by Financials with 31.4%.
• The index now has 7 US foreign listings, as the market met the foreign listing materiality requirement in
the May 2015 Semi-Annual Index Review.
Index Index Sec FIF
Segment
Mcap*

Security Name

Index
WeightSectorTEVA PHARMACEUTICAL IND Large

37,83860.73%

Health care

ISRAEL CHEMICALS

Large

4,715

7.57%

Materials

BANK HAPOALIM

Large

3,591

5.76%

Financials

BANK LEUMI LE-ISRAEL

Large

3,480

5.59%

Financials

BEZEQ ISRAEL TELECOM.

Large

3,321

5.33%

Comm. serv.

NICE SYSTEMS

Mid

2,026

3.25%

IT

ISRAEL CORP

Large

1,536

2.47%

Materials

ISRAEL DISCOUNT BANK

Mid

1,176

1.89%

Financials

ELBIT SYSTEMS

Mid

1,001

1.61%

Industrials

MIZRAHI TEFAHOT BANK

Mid

996

1.60%

Financials

CELLCOM ISRAEL (IL)

Mid

937

1.50%

Comm. serv.

DELEK GROUP

Mid

861

1.38%

Industrials

PARTNER COMMUNICATIONS Mid

825

1.32%

Comm. serv.

Data as of December 1, 2011

Security Name

Index Index Sec FIF
Segment
Mcap*

NICE
Mid
BANK LEUMI LE-ISRAELMidCHECK POINT SOFTW (USD) Large
BANK HAPOALIMMidTEVA PHARMA IND ADR
Mid
WIX.COM
Large
KORNIT DIGITALMidISRAEL DISCOUNT BANKMidCYBERARK SOFTWARE (USD) Mid
ICL GROUPMidMIZRAHI TEFAHOT BANKMidAZRIELI GROUPMidELBIT SYSTEMSMidFIVERR INTERNATIONALMid
INMODE
Mid

18,713
14,23911,702
11,270
9,018
8,206
7,390
7,258
6,681
6,308
5,261
3,951
3,933
3,856
3,505

Index
Weight15.43%
11.74%
9.65%
9.29%
7.43%
6.77%
6.09%
5.98%
5.51%
5.20%
4.34%
3.26%
3.24%
3.18%
2.89%

SectorIT
Financials
IT
Financials
Health care
IT
Industrials
Financials
IT
Materials
Financials
Real estate
Industrials
Cons. disc.
Health care

Data as of December 1, 2021

* In USD Millions.

Information Classification: GENERAL

17

Risk and Return Metrics Definitions
Risk and return metrics
Definition
Total return (%)

Annualized index return

Total risk (%)

Annualized index risk (based on monthly returns)

Return / risk

Ratio of annualized return and annualized risk

Sharpe ratio

The Sharpe ratio is computed as the ratio of index excess returns and annualized total risk where excess return is defined as the difference between theannualized total index return and the risk free rate corresponding to the currency of analysis

Active return (%)

Difference of the annualized index return and the annualized benchmark return

Tracking error (%)

Annualized standard deviation of active returns (based on monthly data)

Information Ratio

Ratio of index active return and tracking error (based on monthly data)

Historical beta

Beta is a measure of the level of co-movement between an index and its benchmark. It is calculated as the correlation between index and benchmark returns
multiplied by the ratio of total risk of the index and its benchmark (based on monthly data)

Average number of constituents

Average number of constituents (based on monthly data)

Turnover (%)

Annualized Average one-way index turnover over rebalancing dates

Price to bookPrice to book harmonic average (based on monthly data)

Price to earnings

Price to earnings harmonic average (based on monthly data)

Dividend yield (%)

Dividend yield (%) average (based on monthly data)

MSCI IndexMetrics®.

Information Classification: GENERAL

18

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Information Classification: GENERAL

19

About MSCIMSCI is a leading provider of critical decision support tools and services for the
global investment community. With over 50 years of expertise in research, data
and technology, we power better investment decisions by enabling clients tounderstand and analyze key drivers of risk and return and confidently build more
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Information Classification: GENERAL

20

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Index returns do not represent the results of actual trading of investible assets/securities. MSCI maintains and calculates indexes, but does not manage actual assets. Index returns do not reflect payment of any sales charges or fees an investor may pay to purchase thesecurities underlying the index or Index Linked Investments. The imposition of these fees and charges would cause the performance of an Index Linked Investment to be different than the MSCI index performance.
The Information may contain back tested data. Back-tested performance is not actual performance, but is hypothetical. There are frequently material differences between back tested performance results and actual results subsequently achieved by any investment
strategy.
Constituents of MSCI equity indexes are listed companies, which are included in or excluded from the indexes according to the application of the relevant index methodologies. Accordingly, constituents in MSCI equity indexes may include MSCI Inc., clients of MSCI or
suppliers to MSCI. Inclusion of a security within an MSCI index is not a recommendation by MSCI to buy, sell, or hold such security, nor is it considered to be investment advice.
Data and information produced by various affiliates of MSCI Inc., including MSCI ESG Research LLC and Barra LLC, may be used in calculating certain MSCI indexes. More information can be found in the relevant index methodologies on www.msci.com.
MSCI receives compensation in connection with licensing its indexes to third parties. MSCI Inc.’s revenue includes fees based on assets in Index inked Investments. Information can be found in MSCI Inc.’s compan filings on the Investor elations section of
www.msci.com.
MSCI ESG Research LLC is a Registered Investment Adviser under the Investment Advisers Act of 1940 and a subsidiary of MSCI Inc. Except with respect to any applicable products or services from MSCI ESG Research, neither MSCI nor any of its products or services
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