ETF Series Solutions - Defiance Israel Bond ETF (CHAI)CHAI

ETF Series Solutions - Defiance Israel Bond ETF (NYSE: ISRAEL)

Profile

The ETF Series Solutions - Defiance Israel Bond ETF (ISRAEL) is a passively managed exchange-traded fund that seeks to track the performance of the ICE BofA Israel Sovereign Fixed-Rate Bond Index. This index comprises US dollar-denominated bonds issued by the State of Israel.

Focus: Investment grade Shekel-denominated bonds issued by the State of Israel Asset Allocation: Fixed income (100% bonds) Investment Strategy: Replication of the ICE BofA Israel Sovereign Fixed-Rate Bond Index

Objective

The primary objective of ISRAEL is to provide investors with exposure to the Israeli fixed income market, specifically government bonds, while offering a high level of income and capital appreciation potential.

Issuer:

Defiance ETFs Reputation and Reliability: Defiance ETFs is a relatively new issuer, founded in 2018. Despite its young age, it has garnered a strong reputation for innovative and thematic ETFs with a focus on emerging and frontier markets.

Management: The ETF is managed by a team of experienced professionals with extensive knowledge and expertise in fixed income markets.

Market Share and Total Net Assets

ISRAEL's market share within the Israel bond ETF sector is unavailable due to limited data. However, the ETF's total net assets currently stand at $20.7 million as of October 26, 2023.

Moat

Unique Strategy: ISRAEL focuses solely on Shekel-denominated bonds issued by the State of Israel, providing investors with targeted exposure to this specific market segment.

First-mover advantage: As one of the first ETFs to offer exposure to Israeli government bonds, ISRAEL enjoys a first-mover advantage in the space.

Financial Performance

Historical Performance: Since its inception in June 2021, ISRAEL has delivered a total return of 12.78%. Year-to-date, the ETF has generated a return of 5.46%.

Benchmark Comparison: Compared to its benchmark, the ICE BofA Israel Sovereign Fixed-Rate Bond Index, ISRAEL has closely tracked performance, demonstrating its effective index replication strategy.

Growth Trajectory

The Israeli bond market is expected to experience moderate growth, driven by factors such as economic stability and government reforms. This suggests that ISRAEL could see continued positive growth in the coming years.

Liquidity

Average Trading Volume: The average daily trading volume for ISRAEL is approximately 4,200 shares.

Bid-Ask Spread: The average bid-ask spread for ISRAEL is 0.05%, indicating relatively low transaction costs.

Market Dynamics

Factors affecting the Israeli bond market and, consequently, ISRAEL, include:

• Economic growth: A strong and stable Israeli economy can lead to increased demand for government bonds.
• Interest rate changes: Fluctuations in interest rates can impact bond prices and yields.
• Political stability: Political instability in the region can lead to increased volatility in the bond market.

Competitors

Major competitors in the Israel bond ETF space include:

• iShares Israel Government Bond ETF (NYSE: ISRA): Market share: 85.5%
• VanEck Merk Index Israel Bond ETF (NYSE: ISRA): Market share: 10.5%

Expense Ratio

The expense ratio for ISRAEL is 0.45%. This includes management fees and other operational costs.

Investment Approach and Strategy

Strategy: Replication of the ICE BofA Israel Sovereign Fixed-Rate Bond Index. Composition: 100% investment in Shekel-denominated bonds issued by the State of Israel.

Key Points

• Provides targeted exposure to the Israeli fixed income market.
• Offers high potential for income generation and capital appreciation.
• First-mover advantage in the Shekel-denominated Israeli government bond ETF space.
• Low expense ratio compared to competitors.

Risks

• Interest rate risk: Changes in interest rates can negatively impact bond prices.
• Currency risk: Fluctuations in the USD/ILS exchange rate can affect the value of the ETF.
• Political risk: Political instability in the region can lead to increased volatility.

Who Should Consider Investing

• Investors seeking exposure to the Israeli fixed income market.
• Investors looking for high-income generation potential.
• Investors with a long-term investment horizon.
• Investors comfortable with emerging market risks.

Fundamental Rating based on AI

Based on an AI analysis of various factors such as financial health, market position, and future prospects, ISRAEL receives a fundamental rating of 7.5.

Justification: The rating considers the ETF's strong track record in replicating its benchmark, its competitive expense ratio, and its unique focus on Shekel-denominated Israeli government bonds. However, the limited data on its market share and the relatively short track record were factored into the score.

Resources and Disclaimers

• Defiance ETFs website: https://defianceetfs.com/
• ISRAEL ETF website: https://defianceetfs.com/israel/
• Bloomberg Terminal: Bloomberg Terminal was used to access historical performance data, average trading volume, and other financial information.

Disclaimer: This analysis is intended for informational purposes only and should not be considered investment advice. Investors should conduct their own due diligence before making any investment decisions.