By Bansari Mayur Kamdar

The iShares MSCI Israel exchange-traded fund (EIS) suffered substantial outflows this week after its price hit a three-year low as clashes between Israel and the Palestinian group Hamas ignited fears of a wider conflict. The $116.92 million fund, the biggest exchange-traded fund (ETF) exposed to Israeli stocks, saw net outflows of $4.94 million so far this week, on track for its worst weekly showing in a month, according to Lipper data. "If you look at EIS, it has more domestic exposure because it holds Mizrahi and a few other financial services companies," said Aniket Ullal, head of ETF data and analytics at CFRA, an investment research firm.

Financials make up over a third of the fund's holdings, according to LSEG data as of Sept. 30, while tech shares are the second biggest sector. The iShares fund slipped 1.1% to $49.4 on Thursday, its lowest since May 2020. The fund has fallen nearly 9% this week, as Israeli and global markets sold off after Hamas sent fighters into Israel over the weekend, leaving more than 1,300 dead and scores held as hostages. Israeli retaliation with air and artillery strikes has killed more than 1,400 Palestinians and destroyed whole neighbourhoods on the Gaza Strip. Net flows in the other two ETFs exposed to Israeli stocks - the ARK Israel Innovative Technology ETF and the BlueStar Israel Technology - were negligible so far this week. "We believe that Israeli technology companies, which have mostly global exposure and have proven their resilience in operating during turbulent times, are likely to outperform locally-oriented Israeli companies during this period of war and regional tensions," said Steven Schoenfeld, CEO of MarketVector Indexes, creator of the ITEQ ETF, in a note. All three funds have seen net outflows of between $10 million and $16 million year-to-date.

(Reporting by Bansari Mayur Kamdar in Bengaluru; Editing by Susan Fenton)