Passive Investing in an Israeli Context
Index fund investing — buying low-cost funds that track a market index rather than trying to beat it — is well established globally and equally valid in Israel. The practical questions for olim are: which specific products are available, how are they taxed, and do currency considerations change the calculation?
Israeli ETFs on TASE
The Tel Aviv Stock Exchange (TASE) lists hundreds of ETFs and exchange-traded notes (ETNs) covering a wide range of indices. The main categories available:
- Israeli equity: TA-35 (top 35 companies), TA-125, sector-specific indices
- International equity: US S&P 500, Nasdaq 100, MSCI World, European indices, emerging markets — all tracked by TASE-listed products in NIS or as hedged products
- Government and corporate bonds: Israeli shekel-denominated bonds tracking various duration and credit quality indices
- Commodities: Gold, oil, and other commodity indices available as certificates
Israeli ETFs are typically structured as exchange-traded notes (shetrei hitchayvut) rather than true fund structures, but for most investors the practical difference is minimal. The important point is that gains from TASE-listed ETFs are subject to Israeli capital gains tax at 25% (or 15% on index-tracking products in some cases — check the specific product).
Costs of Israeli ETFs
Management fees (דמי ניהול (Dmei Nihul)) on TASE-listed index products range from 0.05% to 0.5% annually. Broad market trackers (S&P 500, MSCI World equivalents) typically cost 0.1-0.2%. Niche or actively managed products are at the higher end.
Trading commissions through an Israeli brokerage apply on each buy and sell transaction — typically 0.05-0.15% per trade. For buy-and-hold investors making infrequent purchases, this is negligible.
There is one additional cost to consider: currency exchange. If you earn in NIS and invest in a NIS-denominated ETF tracking a USD index, you are not exposed to exchange rate risk within the product itself. If you invest in USD-denominated US securities from an NIS salary, you need to convert currency with each purchase, incurring a small spread.
US-Listed ETFs from Israel
Many Israeli investors choose to hold US-listed ETFs (Vanguard VOO, iShares IVV, etc.) rather than or in addition to TASE-listed products. This is possible through most Israeli brokerages that offer access to US markets.
The tax treatment for Israeli residents holding US-listed ETFs is the same as for Israeli products: gains are taxed at 25% Israeli capital gains tax. Dividends from US-listed ETFs are subject to US withholding tax (typically 15% under the US-Israel tax treaty) and then reported in Israel, with credit for the withholding.
Israeli Mutual Funds (Kranot Nemanot)
Beyond ETFs, Israel has a large mutual fund (keren nemanot) industry. Israeli mutual funds are actively managed in most cases and charge higher fees than index ETFs — typically 0.5- 1.5% annually. For most long-term investors, the evidence strongly favors index products over active management. The exception may be specific bond or alternative funds where active management adds genuine value.
American olim should note that Israeli mutual funds (but not TASE-listed ETFs structured as exchange-traded notes) may be classified as PFICs by the IRS. This is covered in detail in the next article.
A Practical Portfolio Approach
For most olim, a sensible starting portfolio might combine:
- Keren Hishtalmut invested in a broadly diversified equity track (handles itself automatically)
- Pension invested in an age-appropriate equity/balanced track
- Additional savings in a Kupat Gemel L'Hashkaa or a brokerage account holding low-cost TASE or US-listed index ETFs
This approach minimizes fees, maximizes tax-advantaged accounts, and provides broad market exposure with minimal complexity. As your situation evolves — particularly if you are American and navigating PFIC rules — you may need to specialize further.