Saturday, August 25, 2007

Glatt kosher investments in the stock market?

This discussion will revolve around the following; money, stock market and loopholes in the Halacha.
What could be more exciting than this?
I came upon this gem while searching for some info on the Israeli derivatives market on my Bloomberg terminal. Problems areas to be discussed are highlighted.

Moreshet's Fund Follows Jewish Law to Outperform Israeli Market 2007-05-21 19:28 (New York)By Tal Barak May 22 (Bloomberg) -- Yaacov Moreshet's Shoam Gmisha fund,one of Israel's best performers last year, follows the dictates of Jewish law. Those rules are flexible enough to let him profit from potential gains in every stock in Israel.Moreshet, 43, runs Hilat Shoam Ltd., the biggest Israeli investment company offering mutual funds that strictly followHalakha: Jewish laws covering everything from diet to lending. Hecan't directly buy shares of companies open on the Sabbath, for instance.What he can do is buy options on the performance of Israel's principal stock indexes. Those bets, plus direct investments incompanies deemed compliant with Jewish law, helped his $35million Shoam Flexible fund become Israel's fifth-best-performing flexible fund in 2006 with a return of 23 percent, according toMeitav Investments & Securities Ltd. That is almost double the return of the benchmark TA-25 Index.``I buy the movement of the shares, I'm not its owner,'' Moreshet, who manages the equivalent of $328 million in threefunds, said in his office in Ramat Gan, Israel. ``The reason Istarted this company was based on a religion and ideology thatthere's a need for values in business.''Shoam Gmisha's performance has slowed in recent months,returning 30 percent in the past year while the TA-25 Index hasreturned 25 percent. It is lagging behind in 2007, posting a 12percent gain this year, less than the 20 percent return of thebenchmark index. A flexible fund lets managers choose how much toallocate to local and foreign stocks and bonds.

A Detour?
About 70 percent of Moreshet's assets are in options on the biggest Israeli gauges, including the TA-25 index, the Tel AvivFinancial Measure and the TA-75 Index. He can thus profit fromthe rise of such companies as Israel Chemicals Ltd., which operates on the Sabbath, the period of rest that starts Friday after sundown and lasts until sunset on Saturday. IsraelChemicals stock has risen 30 percent this year.Moreshet is ``using a procedure of a detour,'' said YairElek, who manages the equivalent of $35.3 million at AxiomaInvestment Management Ltd. in Tel Aviv. ``From the point of viewof the Halakha, this is fine, but essentially he still enjoys thegains of these companies.''Moreshet said he sees no contradiction in his investments in an index that includes a company that doesn't follow Halakha,since the fund does not actually own the shares.``I don't have an influence on the company's decisions, so there isn't a Halakha problem here,'' he said.

Rabbinical Guidance
Moreshet works under the guidance of 97-year-old Rabbi Yosef Shalom Elyashiv, whose rulings on Jewish law and practices arewidely followed among the most religiously observant Jews.Halakha is based on religious laws whose origins appear in the Bible and in other early texts such as the Talmud.Elyashiv is one of the most influential leaders of theOrthodox community, said Menachem Friedman, a professor of sociology and anthropology at Bar-Ilan University in Ramat Gan.Rabbi Arie Dvir, another leader in the Orthodox community,is the director of the Hilat Shoam and represents Elyashiv inorder to interpret Jewish law on a day-to-day basis.Among Moreshet's direct investments are companies headed by a religious collective settlement. Albaad Massuot Yitzhak Ltd.,for instance, which is run by Itzik Ben Hanan and makes wet wipesunder the brand name Fresh Ones. Shares of Massuot Yitzhak,Israel-based Albaad have gained 18 percent this year.
Interest Laws
Moreshet also invests in Clal Insurance Enterprise Holdings Ltd., Israel's biggest insurer by premiums, which has added 26 percent since the start of the year, and Bank Hapoalim Ltd.,Israel's largest lender, which has gained 17 percent.Moreshet meets with representatives of each Israeli company that he plans to invest in to make sure they follow Halakha.Financial institutions need a religious endorsement of their lending practices. According to Jewish law, interest can't becharged on any kind of transaction. All banks and insurance companies in Israel are approved by various rabbinical courtsunder these guidelines.Moreshet also has other considerations in mind when choosing investments, such as having the option to change his position in the market in an hour.``The most important thing for me is liquidity,'' he said.``If there is a dramatic event such as soldiers being kidnapped,I want to know that I can immediately change my position in the market.''
Wartime Selling
On July 12, 2006, the Shiite extremist Hezbollah group attacked an Israeli army unit on the border between Israel and Lebanon and captured two soldiers. The TA-25 slumped 4.2 percenton that day -- after Moreshet had sold most of his shares in less than an hour.Because he invests in indexes, Moreshet's fund can profit from the rise in shares of companies deemed non-compliant, such as Israel Chemicals, which harvests minerals from the Dead Sea to make fertilizers.It has a 9.5 percent weighting in the TA-25, the largest along with Teva Pharmaceutical Industries Ltd.Over the past five years, the Shoam Gmisha fund has outperformed the TA-25. It has returned 127 percent since 2002,compared with the benchmark index's 99 percent advance.Moreshet also operates a Halakha bond and a dollar fund. The three funds received the highest rating of three diamonds byMaalot The Israel Securities Rating Co., which is affiliated with Standard & Poor's. Outside Israel Moreshet, who is married with three children, graduated witha bachelor's degree in economics and accounting and a master's in business administration from Bar-Ilan University. He previouslywas head of provident funds, long-term investment plans thatprovide tax benefits, at Clal Finance Batucha InvestmentManagement Ltd. and was the deputy director of financial planning at the Transportation Ministry.Moreshet said about 8 percent of his fund is invested abroad, mainly in indexes in China, Russia and South America. He has to make sure the person who heads the foreign company he is considering investing in isn't Jewish and therefore isn't subject to the restrictions of Jewish law.The company has doubled its assets each year for the past five years, except in 2006 when they tripled. Moreshet says he issure investors are drawn in part to the fund's religious affiliation.``Most people believe there is a God and they like tradition,'' he said. ``They want to be able to get a day ofrest. Otherwise we all go back 2,000 years to the epoch of slavery.'' --Editor: Taylor (aes)Story illustration: Enter {TA-25 MOV } for a chartof the share movements for members of the Tel Aviv StockExchange's benchmark index. To contact the reporter on this story:Tal Barak in Tel Aviv at +972-3-754-1151 ortbarak@bloomberg.net --------------------------------------------------------------------------------------------- Here are the basic transgressions you might be committing by buying a single stock in a company. (From Shulchan Aruch)
From JLaw-Stockmarket
from Orach Chaim - Shabbat prohibitions such as profiting from one's business, employing Jews and working animals; possessing leaven during Passover,from Yoreh De'ah - benefiting from a mixture of milk and meat, from avoda zara, and from orla; lending and borrowing at interest, doing business in forbidden foodstuffs; from Even Ha-Ezer - being a partner in licentious activities;from Choshen Mishpat - being a partner in robbery, withholding of wages, or commission of damages. Mr Moreshet refers to the following loopholes when he is referring to the fact that he does not hold ownership in these companies which are melacha Shabbat.
JLaw-Stockmarket
B. SHABBAT There are numerous prohibitions which relate to running a business on Shabbat. Two of them, working one's slave or beast, are of Torah origin and are dependent on ownership. Practically, the problem is limited to animals, since few-publicly owned corporations own slaves (though it may be that the definition of slave or servant for the purposes of Shabbat is broader than for other laws; see Rambam Shabbat 20:14). It is advisable not to hold stock of a corporation which owns animals that labor on Shabbat.The other restrictions, relating to the ban on directing others to do one's labor on Shabbat or even having them do so without orders, are of rabbinic origin and relate primarily to direct control. According to R. Feinstein (Igrot Moshe OC Vol. IV, 54), control is in the hands of management; the management resembles a sharecropper or contractor who acts on his own initiative, and not a hired worker. Therefore, a Jew may hold even a majority interest in a corporation which does business on Shabbat, provided that the controlling management is predominantly non-Jewish. (Minchat Yitzchak Vol. III, 1 rules likewise). In the case where the Jew is the primary owner, his ownership should, for appearances' sake, not be publicly known.If the management is primarily Jewish, severe problems arise, since it is still prohibited to have a Jew work on Shabbat even on his own initiative. Several authorities have permitted, in case of great need, a partnership with a Jew who would have worked on Shabbat regardless, if a condition is made that the business belongs to the shomer-Shabbat partner only on weekdays (Igrot Moshe OC Vol. IV, 55, Chelkat Ya'akov Vol. II, 54, Tzitz Eliezer OC Vol. II, 65); perhaps the company management, who are the representatives of the shareholders, are empowered to authorize such a condition with an individual shareholder.If the company's business cannot be conducted without Shabbat operations, this resembles the case of having the market day on Shabbat, and it is difficult to be lenient (see Shulchan Arukh OC 307:4 and Mishna Berura 15, Sha'ar Ha-tziun 15). This presumably refers to a case where business is impracticable, and not merely unprofitable, on weekdays only. ----------------------------------------------------------------------------------
I seriously have a problem with his detour method. He is indirectly reaping gains from companies who are mechalel Shabbat and which are represented on the index. I have never heard of any true frum Jews who indirectly reap gains from from a mixture of milk and meat, or from Avodah Zarah, or from orla; lending and borrowing at interest, from businessess in forbidden foodstuffs or from robberies. Have you? Would you invest in this fund? I wouldn't. I am also dying to know if this Halacha bond of his needs a heter iska. Obviously at the time of the transaction it is obvious who the creditor and debitor are.
JLaw-Halacha of Ribis
E. State of Israel BondsOne of the most popular and efficacious means of financing the State of Israel's burgeoning needs is the sale of bonds. Is a Heter Iska required for every transaction? Rav Pinchas Teitz, writing in Hapardes some 30 years ago, rationalizes the practice of selling Israeli bonds without a Heter Iska on the basis that Ribis implies a known creditor and debtor. Here, however, one cannot identify the individuals backing the bonds. Nor at the time of the transaction does the lender know the debtor's identity. Furthermore, it could be argued that all bonds are sold through a broker, invoking Rashi's opinion that is not prohibited. He also raises the corporate status of the Jewish State, the fact that the Ribis involved in each bond is less than a Perutah (the halachic equivalent of a penny) per citizen of Israel, and interestingly enough, the argument that Arabs are also issuers of Israeli bonds, thus involving a non-Jewish partner in the transaction. However, a respondent in the periodical Hamaor (Jubilee Volume) strongly disputes Rav Teitz's assertion and requires a Heter Iska for bonds.
The questions are:
1) Would you invest in this fund?
2) If, not, why not?
3) Are you comfortable with his detour method? If, yes, would you be comfortable with earning indirect gains from other prohibited activies listed in the Shulhan Aruch?
3) Do you think his halacha bond needs a heter iska? Crossposted at:Dov Bear and my blog Rebelwithacause

1 comment:

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