ISRAEL’S GLOBAL TECHNOLOGY COMPANIES Essential for Israel, Essential for Innovation, Essential for Investors

October 2015

Contents

Introduction ............................................................................................................................................................................ 1

The Role of Technology in Israel’s Economic Development ................................................................................................... 1

From pre-Independence to the Economic Crises of the 1980s ............................................................................................ 1

From the mid-1980s to the present day ............................................................................................................................. 2

Israel’s Vital Role in the Global Technology Ecosystem .......................................................................................................... 3

Maximizing the Economic Benefit of Israeli Innovation ......................................................................................................... 6

The TASE–BlueStar Israel Global Technology Index™: Raising the Visibility of Israeli Technology Companies .................... 8

Conclusion: Essential for Israel, Essential for Innovation, Essential for Investors ................................................................ 13

© 2015 BlueStar Global Investors, LLC

Foreword

BlueStar Indexes® develops investment solutions

and research on Israeli capital markets and

produces benchmark indexes for Israeli Global

Equities. This is our third “BluePaper” published

since 2014. It traces the role of technology in

Israel’s economic development, the place of Israel’s

technology companies in the global technology

value chain, and examines the challenges the sector

faces as it seeks to ensure Israel’s place in that value

chain in the future.

In seeking possible solutions to those challenges,

this paper illustrates how these companies are

significantly underrepresented in virtually all

technology stock benchmarks used by investors and

explains the rationale that led to the creation of a

new index for investors seeking exposure to a

broadly-defined universe of Israeli technology

companies – TA-BIGITech™ - and investment

products linked to this index.

Joshua Kaplan Senior Research Analyst

Bruce Schoenfeld Director of Research

Steven A. Schoenfeld Chief Investment Officer

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Introduction A popular children’s book from the early-1960s described Israel as a land of “bibles and Boeings,” “camels and Cadillacs.” It called the desert town of Beersheva “a city of research where solar rays are set to heating water – and producing energy.” Israel 50 years ago was a land of contrasts, with a socialist economy, ancient history and yet with a modern airline flying the newest jetliners and a country where research was already being done into what we now consider a “high-tech” industry. And, yet, this children’s favorite also noted that this land of contradictions still had no television stations of its own.1 Sixty-seven years after achieving its independence, Israel remains a land of amazing contradictions. How is it that a country the size of New Jersey, with a population less than that of New York City, and one subject to the continual threat of armed conflict, has become the fifth most technologically advanced country in the world, ahead of both the United States and Britain?2 Some of this ground has been tackled before, and thus we seek to take a different approach.3 Rather than seeking a cultural or quasi-ethnic explanation for Israel’s economic success, we trace the historical arc of the roles technology and technology policy have played in Israel’s economic development with an emphasis on the mid-1980s to the present. We examine how technology has become a cornerstone of Israel’s economy and the role the technology sector has played in expanding Israel’s global economic footprint. In doing so we highlight some of the technology segments in which Israeli companies are at the forefront of innovation. We examine the challenges that stakeholders – company founders, early investors and the overall Israeli economy - face in scaling up into global, publicly-listed companies. In proposing new solutions to these challenges, we explain the mismatch between Israeli companies’ leading role in the global technology value chain and their presence in existing technology-focused equity benchmarks that guide significant investment flows into the sector. The paper concludes with an explanation of how the creation of a better benchmark for Israeli Global

1 M. Sasek, This is Israel, W.H. Allen, 1962. 2 “The Global Innovation Index 2015,” Bloomberg LP, February 2015. 3 See, for example, Dan Senor and Saul Singer, Start-Up Nation, The Story of Israel’s Economic Miracle, Hachette Book Group, New York, 2009, and Marcella Rosen, Tiny Dynamo – How One of the World’s Smallest Country’s is Producing Some of Our Most Important Inventions, Untold News, 2012.

Technology companies and investment assets linked to it can provide important benefits to investors, Israeli technology companies, and the overall Israeli economy.

The Role of Technology in Israel’s Economic Development From pre-Independence to the Economic Crises of the 1980s

Analysis of the economy in Ottoman and British Mandate

Palestine provides insight into how technology and

innovation became the core of Israel’s economy. During

the early 1900s the land that is now Israel was mostly

desert and swamps and, apart from two or three small

“cities,” primarily rural in nature. The Arab and Jewish

populations began to increasingly self-segregate in the

period between World War I and World War II. It is

therefore possible to separately analyze the economic

development of the two communities and track

development, and technology’s role in it, in the areas

that would become present day Israel.

The composition of the Israeli economy during the inter-war period illustrates how technology in its broadest sense was viewed as a key lever for promoting economic growth. For example, just prior to WWII, the manufacturing sector in Jewish Palestine represented 57.9% of its output, compared to 32.2% for agriculture and less than 1.0% for construction. This runs counter to the image of Israel being a predominately agriculture-based economy during its early existence and, as the broad category of manufacturing implies a significant reliance on technology, highlights the importance of innovation from the earliest years of Israel. Despite the existential threat posed by being surrounded by Arab countries with millions of men under arms, the newly independent Israel was in better economic shape than many realize. Even before independence in 1948, the Jewish leadership in Palestine realized that technology would be crucial to its development and could

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significantly mitigate the country’s lack of natural and financial resources. In 1950, shortly after Israeli independence and even after beginning the process of absorbing 350,000 immigrants in its first 18 months of existence, Israel’s per capita income was $2,817, three times higher than that of Egypt, double the level in Jordan and slightly higher than that of Saudi Arabia.4 The role of technology in Israel’s economic development – in the context of manufacturing capacity and agricultural mechanization – was a clear trend that set it apart from other countries in the region. The early reliance on technology to spur economic development, and particularly putting in place the mechanisms through which technological advancement in certain sectors of the economy such as defense and agriculture could be diffused to other sectors in order to leverage those scarce resources (“technology transfer infrastructure”), remains in place today. The first piece of Israel’s technology transfer infrastructure was put in place in 1956 when the Yeda Research and Development Company was established by the Weitzman Institute of Science (WIS). Although the organization, its objectives and processes are more formalized and broader than 60 years ago, it still retains essentially the same mission: “to initiate and promote the transfer to the global marketplace of research findings and innovative technologies developed by WIS scientists. Yeda holds an exclusive agreement with the Weizmann Institute to market and commercialize its intellectual property and generate income to support further research and education.”5 The State’s formal role in technology transfer was established with the creation of the Office of the Chief Scientist (OCS) within the Ministry of Trade in 1969 and its mission and objectives were enshrined in the 1984 “R&D Law.” These remain in place today, namely “to support industrial R&D, encourage entrepreneurs in high-tech start-up companies, [and to] leverage Israel’s highly capable scientific labor force.”6

4 In 1990 International Geary-Khamis dollars. A Geary-Khamis dollar is a hypothetical unit of currency that has the same purchasing power parity as the U.S. dollar had in the U.S. at a given point in time. It is widely used by economists to make comparisons between countries and over time. The Maddison-Project, http://www.ggdc.net/maddison/maddison-project/home.htm, 2013 version. 5 http://www.yedarnd.com/About-Yeda.aspx. 6 http://www.economy.gov.il/English/RnD/Pages/RnD.aspx.

From the mid-1980s to the present day Despite having this framework in place to support research and development and to speed technology transfer to the private sector, economic growth in Israel followed a familiar boom and bust pattern. It was only after the financial crises of the 1970s and early 1980s, marked by inflation that peaked at 400% and burgeoning and unsustainable public debt levels, that Israeli politicians and economic policymakers became willing to abandon the socialist, interventionist economic policies of the country’s Zionist founders. The introduction of a broad stability program in July 1985 enabled Israel to finally break the boom and bust, high-debt, high-inflation cycle that characterized much of its economy since independence. The broad reforms implemented during this period included budgetary discipline, prudent monetary policy, and reduction in the size of government. Israel was fortunate that a global technological revolution was beginning to unfold just as it was finally getting its economic house in order and codifying in the R&D Law the role of the State in encouraging and funding research and development. It is the confluence of these two events that put Israel on the path toward becoming a global technology powerhouse. Thus, after the “lost decade” of growth from the mid-1970s to the mid-1980s, the technology transfer infrastructure put in place by Ezer Weizman and further refined in the intervening 40 years, once again became a crucial “force multiplier” for the Israeli economy. A second stroke of luck occurred after the collapse of the Soviet Union in the early 1990s. Between 1989 and 2006 more than one million Jews from former Soviet republics emigrated to Israel. More than 60% of them had university degrees, and though most had initial difficulty getting work in their fields, many eventually began to contribute in the sciences and technology development and thus provided further impetus for the ongoing revolution in the Israeli technology sector.

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In 1984 the entire Israeli software industry had $370 million in sales, only $5 million of which was comprised of exports.7 Today a single company, Check Point Software, a leading global provider of internet security technology, sells almost $1.5 billion of software every year, almost all of which is exported.8 Technology exports currently comprise 42% of Israel’s manufactured goods exports or roughly $19.9 billion. (Exports of goods and services are 37% of Israeli GDP.)9 Check Point is just one of hundreds of Israeli technology companies either developing or commercializing products for both domestic use and export. Other key data illustrates just how deeply embedded and important technology R&D and innovation has become for the Israeli economy. Israel currently spends 4.2% of its GDP on civilian R&D, more than any other country, and more than twice the level that is spent in the U.S. The country is ranked only behind Silicon Valley for the total number of start-ups in one location and ranks higher on start-ups per capita. The early leaders of Israel would surely be delighted by how their initial impulses to rely on technology to overcome some of the many challenges the newly independent country faced has literally delivered billions of dollars in dividends over the past seven decades. They surely would have echoed the words of billionaire Chinese investor Li Ka-Shing – whose VC firm has been one of the largest early-stage investors in Israeli technology – who described Israel as “. . . a country that has a wellspring of knowledge and skill . . . that offers unlimited opportunity.”10 Li Ka-Shing is not the only sophisticated technology investor that has tapped into this opportunity. Indeed, virtually every global technology company has a significant R&D facility in Israel. These include Microsoft, Google, Cisco, Samsung, GE and 3M. Apple recently consolidated all of its Israeli employees into a single location in Israel which now constitutes its largest R&D center outside of the U.S. What do these companies know that most investors overlook?

7 Dan Brenitz, “The Military as a Public Space – the Role of the IDF in the Israeli Software Innovation System,” Industrial Performance Center Working Paper Series, April 2002. 8 Check Point Software company reports. 9 Gil Michael Bufman, PhD and Eyal Dabby, “The Israeli Economy – January 2015,” Bank Leumi. 10 “Investment, Innovation, Inspiration in Israel,” Israel Ministry of Economy, June 2014. 11 See “TA-BIGITech™ methodology. http://bluestarindexes.com/bluestar-israel-tech-index-bigitech/methodology/

Israel’s Vital Role in the Global Technology Ecosystem Israel is now an integral – and irreplaceable - link in the global “high-tech” supply chain, without which many products used every day by companies and consumers around the world would not exist. (We define “high-tech” as any industry involved in information, communications, and defense technologies, biotechnology, medical devices, sustainable energy and agriculture11). What is often not visible, however, to either the casual observer or even the seasoned investor, is how essential the role of Israeli technology companies has become. This is because most Israeli technology companies are not user-facing like the largest global technology companies, but rather are key partners, technology developers and providers to those larger companies. BlueStar’s analysis clearly illustrates Israel’s global

technology footprint; Israeli companies either

individually or collectively account for a large portion of

their respective technology sector’s global market share,

are key players in a wide range of technology sub-sectors

or are leaders in secular growth industries. This is why

BlueStar created the TA-BIGITech™ index: to define the

universe of Israeli technology companies and to provide

investors with the broadest, deepest and most complete

benchmark for the Israeli technology sector.

Most technology users - from the person shopping online

to Fortune 500 companies - use Israeli technology

applications and solutions every day without ever being

aware of it. Perhaps the best way to begin to understand

just how embedded Israeli technology is in the global

high-tech ecosystem is graphically, as in Figure 1, (page

4). While consumers and the average investor may be

familiar with some of these companies (for example

Wix.com, Check Point Software and Stratasys), they

probably don’t know they are Israeli. Even seasoned

investors may not realize that Israeli technology

companies provide the crucial “back end” that enables

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companies such as IBM, Microsoft, Samsung, Amazon or

Boeing to introduce new, better-functioning and ground-

breaking products and services. Nor are they aware that

Israeli biotech companies are developing drug molecules

and drug delivery mechanisms that enable larger

pharmaceutical manufacturers to offer new and more

effective drugs.

Examination of Israeli companies’ market share in

different technology sectors also highlights their current

and growing importance in the global high-tech value

chain. BlueStar research shows that there are seven

well-defined technology sub-industries in which Israeli

companies collectively account for more than 5% of

annual global revenues. Although 5% may seem a low

threshold, the size of these sectors range from $1 billion

to $68 billion in annual revenues, so even a small

percentage represents a significant level of revenues.

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Equally important, many Israeli technology companies

are focused on transformational, “disruptive”

technologies that are and will continue to be driven by

strong underlying growth trends. These are evident at

both the company level, where a single company makes

a technological breakthrough such as Mobileye in

autonomous driving, or at the industry level where there

are many companies benefitting from an industry borne

out of a disruptive technology such as the “Internet of

Things”. Companies and industries involved in

transformational technologies will continue to benefit

from long-term secular growth trends regardless of

short-term market cycles.

BlueStar has grouped Israeli technology companies into

14 “investment themes” in order to highlight the secular

growth characteristics of the underlying sectors. These

themes are all disruptive in nature and are driving rapid

changes in health care, energy, agriculture, data analysis

and automation, and are highlighted in Figure 3. It is

clear that even in industries where Israeli companies do

not have significant individual market share, the

collective footprint of Israeli companies is significant in

many key technology subsectors.

Maximizing the Economic Benefit of Israeli Innovation Technological innovation has been a significant contributor to Israeli economic growth over the past decades. This is clearly evidenced by the successful penetration by publicly-traded Israeli companies into the global technology ecosystem, the contribution of acquired Israeli companies to their new owners, and the impact of the Israeli R&D centers of international technology companies. However, significant hurdles remain if Israel is to continue to rely on the technology sector for growth in value-added exports, high-paying employment and higher tax revenues.

One of the biggest hurdles is Israel’s difficulty in nurturing its angel investor or VC-funded start-ups into publicly-traded multinational companies. For every Israeli company that is listed on a stock exchange in Israel, New York or London, there are likely ten or more companies that were acquired before going public.

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Notwithstanding the recent high profile IPOs of Mobileye, Cyberark and SolarEdge (automated driver assist systems, cybersecurity and solar energy efficiency, respectively) almost every quarter sees news of early- and mid-stage Israeli companies being bought by larger, usually global companies. An illustrative example is the social navigation company Waze, which Google acquired for $966 million in June 2013. Given the current valuations of similar tech companies, it is clear that early Waze investors left billions on the table by deciding to sell to Google rather than seeking a public market exit. Looking further back, consider what instant messenger pioneer Mirablis would be worth today compared to the $287 million paid by AOL in 1998. One of the reasons that a large number of Israeli technology companies have been acquired before reaching maturity - and before they are able to realize higher valuations - has been the historical lack of mezzanine and late-stage financing. So, while Israeli companies have for many years had ample access to seed and early-stage funding from venture capital and private equity firms, they have had a much harder time attracting the late-stage financing that is essential for companies to bring their products to market on a global scale. Indeed, as noted in the Milken Institute’s 2014 report, “(Re)Inventing Israeli Capital Markets,” 80% of investment goes to early-stage funding and only 20% to late-stage funding. In the U.S., venture and private equity funding is split equally between early- and late-stages.12 Without this late-stage funding, most Israeli start-ups never make it to an IPO. Indeed, as of 2015, less than 5% of investor exits from Israeli start-ups came via public markets compared to 20% in the U.S.13 Thus while the Israeli economy excels at bringing in VC funding, it is far behind many other developed economies in growing its start-ups into publicly traded companies.14 “Money left on the table” by premature exits has broad economic ramifications beyond start-up founders, investors and employees. Premature exits, particularly when companies are sold to foreign-owned firms, limit future growth of the company in Israel, thereby depriving the country of future jobs and ownership of

12 Glenn Yago and Steven Zecher, “(Re) Inventing Israeli Capital Markets: Financing the Transition from Startup Nation to Global Nation,” Milken Institute, March 2014. 13 Ibid. 14 Brian J. Friedman, “How Does Stock Market Investing Benefit Israel?” Israel Investment Advisors, June 30, 2014. 15 Yago and Zecher, op. cit. 16 Ibid.

patents and other intellectual property that could potentially be more widely diffused within the economy. This ultimately can reduce the country’s GDP growth potential. As noted by the Milken Institute, “Innovative local companies that . . . launch new technology platforms tend to be attractive to global investment partners . . . These companies are characterized by high levels of R&D and ownership of more patents; they are also more likely to go through initial and secondary securities offerings. Start-up firms that grow into mature corporations while remaining part of the economy are the self-sustaining firms Israel needs.”15 Among the solutions proposed for bridging the financing gap that would allow start-ups to mature to the point of being IPO-ready were the creation of dedicated late-stage financing funds, listed venture capital trusts such as those pioneered in the U.K. in the 1990s, and of business development companies, which are regulated, closed-end funds that exclusively invest in start-ups and small businesses. This structure has been in place in the U.S. since 1980.16 A more recent example that could be applied to Israeli capital markets is the U.S. JOBS Act which eased the regulatory and disclosure requirements small companies need to meet prior to an IPO and for several years after listing. It is not enough just to ease the path toward an IPO; small companies in general, and particularly small technology companies, need to be listed on an appropriate market. This is why some exchanges such as the London Stock Exchange (LSE) and the Toronto Stock Exchange initially created specific markets for smaller companies. (e.g. London AIM and TSX Venture.) Development of such an exchange in Israel would provide small companies with a way to gain late-stage financing via an IPO that would likely be too small to meet the requirements of premier technology listing venues such as Nasdaq and AIM. This would reduce the probability of pre-mature exits for promising Israeli technology companies.

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The TASE–BlueStar Israel Global Technology Index™: Raising the Visibility of Israeli Technology Companies As Israeli policymakers, regulators and the Tel Aviv Stock Exchange (TASE) grapple with these issues, all of which will require significant political will and time to resolve, one part of the solution already exists. It is the TASE-Bluestar Israel Global Technology Index® (TA-BIGITech™) which since its October 2013 launch has become the de facto benchmark for investors in Israeli and Israel-linked technology companies. Growing recognition of TA-BIGITech™ and pools of assets benchmarked to the index will help incentivize companies to seek public market listings and provide public market investors with broad and deep access to those securities while increasing share liquidity and public exposure. TASE involvement

17 This is true of the major Israeli benchmarks, the TA-100 and TA-25 indexes, as well as the tech-focused Blue Tech and Tech Elite indexes. TASE adopted TA-BIGITech® as its third technology index on March 24, 2015; Steven Schoenfeld and Bruce Schoenfeld, “Building a Better Country Index,” Journal of Indexes, Sept – Oct 2014. 18 “Asset Allocation: Strengthening Your Portfolio By Including Israeli Global Equities, “ BlueStar Global Investors, May 2014. (http://bluestarindexes.com/wp-content/uploads/2014/05/BlueStar-Asset-Allocation-BluePaper-20-May-2014.pdf).

with the index, which began in March 2015, underscores the importance of this initiative to Israeli capital markets. TA-BIGITech™ and its progenitor, the BlueStar Israel

Global Index® (BIGI®), was created to address the

shortcomings in major global index providers’

methodologies that result in the exclusion of billions of

dollars of market capitalization from indexes that

purport to track the Israeli equity universe. This is

because those indexes (e.g. MSCI Israel, FTSE Israel and

the global benchmarks that include Israel) only consider

a stock to be Israeli if it maintains a primary listing in

Israel.17 According to BlueStar research, this results in

$150 billion of market capitalization that is “missing”

from MSCI Israel.18

Israeli companies are also underrepresented in global

technology benchmarks, even though, as shown in

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Figures 2 and 3, they collectively have significant market

share in key technology segments and are a vital part of

the global technology supply chain. This means that

technology focused investors that use broad benchmarks

such as the Nasdaq 100 or the S&P Global Technology

Index are missing out on the Israeli global technology

investment opportunity.

Changing dynamics in the indexing/passive investment

landscape will facilitate the opening of this investment

opportunity to a broad range of investors. Over the past

five years focused benchmarks, and investment products

linked to them, have become a key feature of an ever

more specialized investment world. Investors are

aggressively seeking out more focused investment

products such as new country funds, sector funds,

thematic funds, and sector-focused country funds.

The technology sector in particular has seen many new

indexes and products geared toward investors that want

broad exposure to a specific country or region or a

specific technology sector that would otherwise be costly

to replicate by purchasing individual securities.

Examples include the MarketVectors Semiconductor ETF,

PureFunds Cyber Security ETF, KraneShares CSI China

Internet ETF and the Emerging Markets Internet and

Ecommerce ETF. TA-BIGITech® provides the basis for

products that will provide similar exposure for investors

seeking to invest in the dynamic Israeli technology

sector.

TA-BIGITechTM is constructed using BlueStar Indexes’

unique methodology and proprietary database of Israeli

and Israel-linked companies. It is a modified market

capitalization weighted index that caps the top-weighted

constituents at 10%. It includes the largest and most

liquid technology companies, as well as mid- and small-

cap companies that have sufficient liquidity for global

investors. The methodology allows for the inclusion of

Israeli companies listed on TASE and other major

exchanges such as the LSE, New York Stock Exchange,

NASDAQ and the Singapore Exchange. The methodology

uniquely provides for the inclusion of companies that

develop, manufacture, and/or deliver innovative

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technologies in a wide range of sectors beyond the now

generic “information technology.”

Despite the vital role that Israeli companies play in nearly

every transformational technology industry and key

“disruptive technology” investment theme, they are

often overlooked by investors. This is because they are

not included in major global technology indexes or

because they are not among the very largest companies

in their industry. (See Figure 5; contrast with Figure 3)

One index in which Israeli companies are well

represented is the ISE Cyber Security Index, in which

Israeli companies have close to a 16% weighting.19

Most investors in the PureFunds ISE Cyber Security ETF

(HACK) would likely be surprised to learn that they have

so much invested in Israeli companies, but should be

concerned that those companies were missing from their

technology portfolios prior to the launch of HACK. If they

investigate further, they should be equally concerned

that virtually all the leading Israeli technology companies

outside of the cybersecurity sector were also missing

from their portfolios. The TA-BIGITech® index is a

potential solution to that problem.

It is essential to address the gap between the importance

of Israeli companies in the global technology industry

and their relative absence from most technology

investors’ portfolios. Because many Israeli technology

companies choose to list their shares outside of Israel,

many have become “orphans” in global benchmarks

used by asset managers and pension funds. Thus TA-

19 Bloomberg. As of September 30, 2015.

BIGITechTM is a key part of the solution to raise the

visibility of Israeli technology companies – and the

overall “global footprint” of Israel’s economy – to North

American and global investors, and helps breaks the

cycle illustrated in Figure 4. This creates dual benefits;

for investors TA-BIGITech™ provides the benefit of

including the Israeli technology companies in their

investment framework; for Israel’s economy, the

heightened visibility of publicly-traded technology

companies will foster the further development of Israel’s

financial system.

The minimal overlap of TA-BIGITech’s™ constituents and

those of major global technology indexes and existing

technology-focused ETFs, further strengthens the

investment case for both technology investors and

general/global investors to add Israeli technology

companies to their portfolios. Investors that make an

allocation using TA-BIGITech™ will benefit as the visibility

of the companies in the index grows.

As if this was not already a major oversight by investors,

the majority of assets focused on the overall Israel

investment opportunity, are also underweight Israeli

technology. The TASE’s main benchmarks (TA-25 and

TA-100), as well as those from global index providers

such as MSCI, FTSE and S&P, significantly underweight

the technology sector due to their specific

methodologies which emphasize Tel Aviv-listed

companies. Only BIGI® and TA-BIGITech™ include Israeli

technology companies no matter where they are listed

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and therefore adequately represent technology’s weight

in the Israeli economy.

The inclusive methodology behind TA-BIGITech™ is designed to produce the broadest and deepest benchmark for Israeli technology stocks and results in a market capitalization approximately three times larger than that of the existing TASE technology indexes. (See Figure 7.)

This “broad, deep and complete” methodology also facilitates the inclusion of recently listed companies in TA-BIGITech.™ Newly listed companies are generally eligible for inclusion in TA-BIGITech™ within six months of listing as long as they meet certain trading volume and market capitalization levels. Inclusion in the index then becomes part of a virtuous cycle as it attracts investor interest and can significantly enhance liquidity once

various TA-BIGITech™ index-tracking funds are available in the U.S., Israel and elsewhere. Knowing that there is a robust and liquid market for their equity may ultimately convince more start-up entrepreneurs and the venture capital firms that back them to push through the crucial penultimate phase of securing late-stage funding rather than selling out prematurely.

TA-BIGITech™ is the first index to include Israeli technology companies trading on markets worldwide and it is already the underlying benchmark for Israeli-listed index funds. As more investors absorb the Israeli technology story, and as more domestic Israeli investors allocate to Israeli technology stocks listed abroad, the vicious cycle highlighted in Figure 4 will be transformed

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into a virtuous cycle that supports Israeli innovation and fosters global dissemination of that innovation. Investment in Israeli technology equities – with TA-

BIGITech™ as the investment universe – has great

potential to be a “double bottom line investment.” First

and foremost, a broad, deep and diversified portfolio of

innovative Israeli technology companies provides

investors with significant long-term return potential and

has minimal overlap with existing technology

benchmarks and funds. Second, the development of a

robust public market for Israeli technology stocks will

increase the probability that Israeli technology start-ups

will be able to scale-up, stay independent and eventually

return more value to shareholders and the Israeli

economy. This virtuous circle, once realized, will have a

positive impact on Israel’s economic resilience and help

accelerate its journey towards becoming one of the

world’s most advanced developed economies.

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Conclusion: Essential for Israel, Essential for Innovation, Essential for Investors

Technology has been a key driver in Israel’s economic development since before it achieved independence in 1948 and remains an increasingly important component of the country’s economic growth. Israeli leadership in a wide range of technologies that are transforming how people live and how companies do business – cybersecurity, IT hardware and software, big data, defense and security technology, clean and renewable energy, biotechnology, medical devices and sustainable agriculture – is unquestioned. We believe that the publicly-traded shares of Israeli technology companies – those listed in Israel and around the world - should be part of every serious technology investors’ portfolio. Until now, public market investors seeking to participate in – and profit from – Israel’s cutting-edge technology companies have been unable to access that opportunity in an efficient and cost-effective manner. Existing indexes and index-based investment products have not sought to capture the Israeli technology company universe and even technology specific indexes have offered investors very limited exposure to these companies. BlueStar has now resolved that conundrum through the development of the TA-BIGITech™ index which provides broad, deep and complete exposure to Israeli global technology companies. No longer will investors – whether angel, VC, private equity or public stock investors - have to wonder about the long-term returns, risk and correlations of the Israeli technology sub-asset class. And no longer will investors have to sit on the sidelines for lack of the proper investment vehicle to provide exposure to the “Start Up Nation.” That exposure is available now through the TA-BIGITech™ index and the index products linked to it. Exposure to Israel’s technology leaders is essential for investors whether for the technology component of their portfolios or as part of their global asset allocation. The global footprint of Israeli technology companies is unparalleled and covers all the market segments that are at the forefront of innovation. Rapid investor adoption of the TA-BIGITech™ index will be beneficial for the companies and the Israeli economy. The “first bottom line,” though, is the growth potential and investment opportunity that these companies’ shares represent.

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BlueStar Global Investors LLC and BlueStar Indexes make no warranty, express or implied, as to the results to be obtained by any person or entity from the use of the index, trading based on the index, its suitability or any data included therein in connection with investment in ETFs or funds tracking BlueStar’s BIGI® or TA-BIGITech™ benchmarks, or for any other use, or in connection with any other product mentioned in this document. The information contained herein is not intended as a recommendation to buy or sell any security and past performance is no guarantee of future results. © 2015 BlueStar Global Investors, LLC

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