Steven Schoenfeld – BlueStar Indexes

Steven Schoenfeld is the Founder & CIO at BlueStar Indexes. He is a 31-year veteran of the investment management industry, author of Active Index Investing and co-founder of We recently spoke with Steven, who will be speaking at our ETF Strategy Summit (Oct. 15 - 16 – Dallas), as he shared with us his thoughts on Global Asset Allocation, Israeli Equities and Global Thematic ETFs.

ETF Strategy Summit: What geopolitical headline risks are you looking out for the balance of 2018?

Steven Schoenfeld: As we have seen in this year in the late Summer with the Turkish financial crisis, Emerging Markets as a group remain subject to the flames of financial and geopolitical contagion. And with the US Federal Reserve committed to tightening monetary policy, the margin for error for countries that have fragile financial systems and/or balance of payments is slim.

On the geopolitical front, there is significant instability across the Middle East – especially in Syria, Iraq and Yemen - as well as in North Asia, despite the nascent understandings between the US and North Korea.  Another major concern for investors would be if Turkey and Iran are drawn closer to Russia due to the economic stresses both Mideast countries are experiencing.  Finally, while not on the radar of many investors, the Venezuelan economy is ever-closer to the brink of collapse, and a massive migration or civil war are both distinct possibilities that could impact Mexico, the US, and Venezuela’s neighbors in Latin America and the Caribbean.

ETF Strategy Summit: When considering global allocation, are the benefits of investing by country, versus by region, worth the additional cost and complexity?

Steven Schoenfeld: While a well-diversified, broad-based allocation to global equities is the key foundation for long-term investment, I believe that it is essential to also make country-level allocations to address the shortcomings of cap weighted indexes - both for US and International stocks.

For example, the Technology sector weighting in both the US and Emerging Markets is more than 20%, while it’s only around 10% for Developed International Equities (aka EAFE-benchmarked assets).  Thus, investors should consider an allocation to Developed Market Tech stocks to ‘fill the gap,’ which the NYSE-listed ITEQ® Israel Tech ETF tracking BlueStar Israel Global Technology Index can serve this purpose.

Furthermore, certain highly-attractive markets - for example, Israel, Norway and New Zealand in Developed Markets - have such small weights in the standard index-based strategies (as well as actively-managed portfolios) that investors should consider a strategic allocation to gain exposure to these markets.  In the volatile year of 2018, all three of them would have improved diversification and returns for an international portfolio.

ETF Strategy Summit: When considering Israel as an investment opportunity, how should investors balance their views of its progressive, robust economy with the potential for a regional conflict?

Steven Schoenfeld: As BlueStar’s research has proven, Israel’s economy is resilient and Israeli companies are global in scope.  Thus, small-scale conflict with Hamas-controlled Gaza and Iranian backed proxies like Hezbollah in Lebanon and militias in Syria has minimal impact on the Israeli equity market.   In fact, Israeli stocks as measured by the broad-based BlueStar Israel Global Index (BIGI®, tracked by ISRA®, the NYSE-listed VanEck Vectors Israel ETF) are much more correlated to global equity trends than to regional geopolitics.   Furthermore, Israeli Technology companies are even more focused on the global marketplace, and thus the correlation of the BlueStar Israel Global Technology Index (BIGITech®, tracked by ITEQ®, the NYSE-listed BlueStar Israel Technology ETF) is more correlated to global technology benchmarks than to the local TA-125 benchmark of Tel Aviv-listed stocks.

ETF Strategy Summit: What does Bluestar look for in technological investment themes?

Steven Schoenfeld: Building upon our deep knowledge of cutting-edge technology trends gained from years of researching the Israeli tech ecosystem and the companies that emerge from the ‘Start-Up Nation,’  BlueStar identifies industries and tech sector themes to isolate where drivers of current and future business demand is derived.  We design our thematic indexes with one goal in mind — Provide indexes with the highest degree of thematic integrity.

ETF Strategy Summit: How might advisors deploy today’s thematic ETFs within portfolios?

Steven Schoenfeld: Similarly to my philosophy for International Equities, Thematic Tech ETFs can strategically complement a broader-based technology allocation, and also generally can help address the US-bias of most investors’ technology exposure.

Furthermore, investors can also tactically overweight Thematic areas that that they have a strong conviction about, for example, toward Augmented and Virtual Reality, or into the more advanced Quantum and Machine Learning areas of computing technology.

ETF Strategy Summit: Thanks Steven. We look forward to hearing more of your thoughts at the ETF Strategy Summit October 15 - 16 in Dallas.