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Despite the permit given six years ago to provident funds and further-education (hishtalmut) funds to invest 5 percent of their portfolio overseas, investment in off-shore securities has not become a substantial part of portfolios. Fund managers say the ceiling is too low to make it profitable.

Insurance companies, which received a similar permit six months ago, have invested less than $200 million, or 0.6 percent of their assets, in foreign securities. According to the Bank of Israel, the total investment of insurance companies abroad is about $350 million, 1.1 percent of their assets. Of this amount, only $173 million went to securities of foreign companies, and the balance - about half - was invested in Israeli securities listed abroad.

Provident funds and further-education funds have only invested abroad $400 million, or 1.4 percent of their assets. The potential investment abroad amounts to $3 billion, so that the original concept of distributing the risk is, in fact, not being implemented.

Fund managers explain that the benefits generated by a distribution of the portfolio are outweighed by the high cost required in order to collect information and create an operating infrastructure abroad, especially since the ceiling is only 5 percent of the entire investment portfolio.

Moreover, the tax distortions that were to be amended by the Ben-Bassat reform and were not, make it hard to invest abroad. Provident funds, further-education funds and pension funds that invest overseas are to pay 35 percent of the real profit generated through capital gains, dividends and interest, while capital gains made on Israeli securities are tax free. The reluctance of insurance companies, on the other hand, is not quite clear, because their capital gains, interest and dividends are exempt from tax.

American funds invest about 50 percent of their portfolios outside the country. In Ireland and other countries in Europe institutional investors invest even more than half of their portfolios abroad.