Why the S&P Israel 30 LargeCap Index Outperformed in 2025 and Why It Could Be a Strategic Bet in 2026

In 2025, the S&P Israel 30 LargeCap Index emerged as a standout performer in global equity markets, outpacing major benchmarks like the S&P 500 and MSCI Emerging Markets (MSCI EM). This outperformance was driven by a combination of undervaluation, sector diversification, and macroeconomic tailwinds in a high-growth, under-owned market. As investors look ahead to 2026, the index's structural advantages and evolving global dynamics position it as a compelling strategic bet.

Valuation Advantage: A Discounted Opportunity

The S&P Israel 30 LargeCap Index's 2025 outperformance was underpinned by its attractive valuation metrics. As of December 31, 2025, the index traded at a forward price-to-earnings (P/E) ratio of 14.07, significantly lower than the S&P 500's 23.14 and the S&P Europe 350's 16.41. This discount reflects Israel's status as an emerging market with a relatively smaller capitalization-to-GDP ratio compared to developed markets. In 2024, Israel's market capitalization accounted for 61.6% of its nominal GDP, up from 51.4% the prior year, indicating a growing but still underpenetrated market.

This valuation gap created a compelling risk-rebalance opportunity. While U.S. large-cap growth stocks, particularly in technology, faced overvaluation concerns, Israel's market offered a more attractive entry point for investors seeking exposure to innovation-driven economies without the premium pricing of developed-world tech leaders. The iShares MSCI Israel ETF (EIS), a proxy for the broader Israeli market, surged 45.1% in 2025, underscoring the appetite for undervalued, high-growth assets.

Sector Diversification: Innovation and Resilience

The S&P Israel 30 LargeCap Index's sector composition further amplified its appeal. The index includes 30 of Israel's largest and most liquid companies, spanning technology, cybersecurity, healthcare, and defense- sectors that thrived in 2025 due to global demand for AI-driven solutions and geopolitical tailwinds. For instance, Israel's cybersecurity firms benefited from heightened global demand for digital security, while its healthcare and biotech companies capitalized on advancements in personalized medicine.

This diversification contrasted with the S&P 500's concentration in tech and communication services, which, while profitable, faced valuation pressures as earnings growth slowed. Meanwhile, the MSCI EM index, which includes Israel, outperformed U.S. equities in 2025, driven by a weaker U.S. dollar and AI-related demand. Israel's sectoral breadth allowed it to participate in multiple growth narratives, reducing exposure to single-sector volatility.

### Strategic Case for 2026: Under-Owned and High-Growth The S&P Israel 30 LargeCap Index remains an under-owned asset in global portfolios. Despite its 2025 gains, the index's market capitalization still represents only 61.6% of Israel's GDP, far below the 150%+ ratios seen in mature markets like the U.S. or Japan. This suggests significant room for growth as international investors rotate into undervalued emerging markets.

Moreover, Israel's economic fundamentals are robust. A stable credit outlook, a highly skilled workforce, and a thriving startup ecosystem position the country to benefit from global trends like AI adoption and energy transition. For 2026, the index's low P/E ratio and sectoral resilience make it an attractive hedge against overvalued U.S. equities and a gateway to innovation-driven growth.

Conclusion

The S&P Israel 30 LargeCap Index's 2025 outperformance was no accident-it was the result of a favorable valuation gap, sectoral diversification, and macroeconomic tailwinds. As 2026 unfolds, these factors, combined with Israel's under-owned status, make the index a strategic bet for investors seeking high-growth opportunities in a disciplined, innovation-led market.