(By Street Authority) I'll confess. I'm not a huge fan of exchange-traded funds (ETFs). I can fully appreciate what they offer, but there's just not enough upside with them most of the time.
See, though diversification is usually the goal, more often than not, ETFs are so diversified that mediocre, watered-down returns are about all you can get. More than that, if you ever take a closer look at the comparative performance of most ETFs, then you may be surprised to find that most of them show a strong correlation to the market's overall performance.
In other words, what's the point? Why not just buy an S&P 500 index fund and forget about it?
Every now and then, however, a real opportunity arises with an ETF.
Let me explain...
The ETF I'm talking about is the iShares MSCI Israel Capped Index Fund (NYSE: EIS).
A little background on Israel, its market and its economy may be in order to fully appreciate the brewing upside. The iShares MSCI Israel Capped Index Fund -- along with the country's stock market -- lost 25% of its value in the span of six weeks by the middle of 2011. It was fueled by a combination of the debt crisis in the Unites States and protests in Israel about the skyrocketing cost of living.
Located in an unfriendly neighborhood
This was a blow the country certainly didn't need, given its troublesome geopolitical situation. Israel is surrounded by political and military enemies, and missile and mortar attacks aren't uncommon sights for those who live there. So if there was ever a reason for a population to hole up and live every aspect of their lives defensively, Israel's inhabitants have one.
But Israel has done the exact opposite with its economy.