Technical Correction Shakes Out Short-Term Traders; Fundamental Trends Intact November 5, 2014

BlueStar Israel Equity Update November 2014

The increased volatility in global equity markets at the end of September evolved into a full-blown technical correction in mid-October as investors took a dim view of economic indicators in Europe, China and Japan. As many technical indicators showed signs of a topping pattern in global equities, a 10% peak-to-trough correction in many global equity markets became a self-fulfilling prophecy that materialized in October. Global equities began to rebound on relatively dovish comments from the U.S. Federal Reserve Bank and a long overdue indication that the European Central Bank would begin to implement its own version of quantitative easing. In addition, many major U.S. companies in a range of sectors reported positive Q3-14 earnings and revenue growth, propelling stocks around the world higher. Indeed, U.S. equity benchmarks reached all-time highs and many other international equity indexes clawed back most of the month’s early declines. Similar dynamics were evident in the universe of Israeli Global Equities. After rising close to September’s highs early in the month, virtually all shares in our universe plunged amid mid-month’s global selloff. As global volatility and other measures of investor fear ebbed, most share prices recovered to or above levels reached prior to the mini-correction. With few exceptions, the Israeli Global companies that reported earnings in the last week of October, and as of this writing, so far this month, have exceeded market forecasts. While not immune to global macroeconomic trends and equity market volatility and uncertainty, fundamentals of many Israeli Global companies remain strong and we expect fundamentals to drive shares prices higher. A major risk to our view is further economic weakness in Europe and China, two key export markets for many Israeli companies. Additionally, we expect volatility in global equities, including Israeli Global equities to remain at elevated levels until the U.S. Federal Reserve actual begins to raise interest rates. Our short term outlook for Israeli Global Equities remains neutral with a bullish bias as BIGI® has not broken through key technical resistance levels despite its sharp recovery from October’s lows. Our technical outlook, including key resistance and support levels, is highlighted on pages three and four. As we have stated for several months, we favor Israeli Global equities mostly in the Information Technology, Health Care and Materials sectors over companies more closely tied to the local economy. Several of the largest Israeli Global companies including Teva, CheckPoint, NICE Systems and CaesarStone reported Q3 2014 earnings recently and each of those companies’ shares are on a solidly positive trajectory. On the other hand, the recent war with Gaza, slowing Israeli GDP growth, and a weaker shekel are weighing on the Financials and Consumer sectors in Israel. These trends resulted in BIGI’s® nearly 350 bps outperformance over the MSCI Israel index in October: We believe that these trends will remain intact until at least early-2015. We remain cautious in our outlook for Israeli Global Equities until global and Israeli economic growth are on a clearer trajectory and global markets have digested the first rate hike by the Federal Reserve.

BlueStar Israel Global Index ® Relative Performance Since 2010

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These are not recommendations to buy or sell any security © 2014 BlueStar Global Investors, LLC

This BlueStar Indexes® Monthly Update covers Israeli equities traded worldwide. We use the BlueStar Israel Global Index® (“BIGI ®” or BLS:IND on Bloomberg) as the benchmark for our review, as it represents the complete opportunity set of Israeli equity investments. Israel has one of the world’s most resilient economies and its technology sector is a global innovation leader. Yet few investors are aware of the broad global footprint of Israeli companies in other sectors. The BlueStar Israel Equity Update provides insight into the macro forces (including the geopolitical environment under which Israel’s economy operates) and the individual company investment opportunities that have contributed to Israeli Global Equities’ impressive performance over the past two decades.

Benchmark October

Performance

BIGI® -0.76%

MSCI Israel -4.00%

TA-100 -2.23%

S&P 500 2.32%

MSCI EAFE -0.27%

MSCI EM 1.42%

Global Equity Benchmark Comparison: October 2014

®

70

90

110

130

150

170

190

TA-100

S&P 500

BIGI

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BIGI® October 2014 Gainers and Losers

Source: BlueStar Global Investors LLC; Currency-Adjusted returns in dollar terms

Top Israeli Equity Gainers and Losers

Top-Performing Israeli Stocks October 2014

Worst-Performing Israeli Stocks October 2014

Imperva Inc 42.60% Alcobra Ltd -76.55%

Plus500 Ltd 22.88% Ceragon Networks -47.06%

Ceva Inc 21.28% Photomedex Inc -38.06%

Attunity Ltd. 19.68% SodaStream -25.26%

Silicom Limited 14.68% Brainsway Ltd. -19.96%

LivePerson Inc 14.38% Compugen Ltd -16.69%

Alon Usa Energy 11.70% Ezchip Semiconduct -15.76%

Ormat Technologies 10.20% Borderfree Inc -15.04%

DSP Group 9.24% Africa Israel Properties -14.32%

VeriFone Systems Inc 8.38% Elco Hldgs -13.48%

Sector (As Defined by GICS)

October 2014

Information Technology 1.20%

Health Care 1.07%

Utilities -0.04%

Telecom. Services -0.20%

Industrials -0.24%

Consumer Staples -0.26%

Energy -0.27%

Consumer Discretionary -0.27%

Materials -0.31%

Financials -1.45%

Israeli Equity Sector Attribution to BIGI® Performance

These are not recommendations to buy or sell any security © 2014 BlueStar Global Investors, LLC

• The Bank of Israel kept its policy benchmark rate for November at 0.25% • Recent rate cuts have led to a weaker shekel • The effects of the Bank of Israel’s low interest rate policy on the broader economy needs more time to manifest before the

Bank of Israel decides on its next steps • The September CPI reading declined by 0.30%, 20 bps below expectations • The CPI over the past twelve months was -0.30% indicating that Israel’s economy is in a deflationary environment • Nominal wages in Israel increased by 0.90% in May-July compared to February-April

• The second estimate of Q2 Israeli GDP growth was revised down from 1.7% to 1.5% and the Bank of Israel lowered its 2014 GDP growth

forecast from 2.9% to 2.3% while maintaining a 2015 GDP growth projection of 3.0% • Economic activity in the third quarter is expected to have slowed or even declined as a result of Operation Protective Edge,

though there are signs that the economy has already recovered from the resulting decline in tourism and consumer spending • Goods exports increased by 1.3% in September after declining by 6% in August • The Purchasing Managers’ Index improved slightly in September to 49.9 from 42.6

• Housing prices remained unchanged in September after seven consecutive monthly increases while the volume of transactions in the housing market declined by 20 percent from Q1 to Q2 of this year

“The BlueStar Bottom Line” Our market outlook is neutral with an upward bias. Our outlook has not changed much from the previous few months when we also stated that economic growth in Israel is experiencing continued moderation and slower global trade is resulting in lower export trends. We continue to believe that Global Israeli Information Technology, Health Care, and Materials companies are poised to benefit from global growth in those industries for the foreseeable future while the trend for stocks more closely tied to the domestic economy will be uncertain for some time to come. While we see potential for Israeli Global Equities to break through resistance as we head into a seasonally strong period for equities, we maintain a neutral outlook for two reasons: 1) Key resistance has not actually been decisively broken and, 2) We expect volatility in global equity markets to remain at elevated levels until the Federal Reserve actually begins raising rates and we get a clearer outlook for global economic growth.

October Economic Update

The opinions expressed in this report are those of BlueStar Global Investors, LLC and should not be interpreted as a recommendation to buy or sell any security. Readers should consult with a financial professional before investing.

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Market Trends & Technical Analysis

These are not recommendations to buy or sell any security © 2014 BlueStar Global Investors, LLC

LT Support: 195-200

MT Support: 245-255

MT Target: 310-325

The two parallel trend lines connecting the tops in 2008 and 2011, and now 2014, in the chart above were confirmed in March and early April as the most significant area of upside resistance for Israeli Global Equities in the long-term chart of BIGI®. The highest of the two trend lines should serve as major resistance for the index in the medium-term. That line is doubly-significant, as it equates with the measured target from the 2009 lows with respect to the 2012 low. If theses trend lines are breached they will likely turn into a key support area for the index and serve as a strong base for this multi-year bull-market in Israeli Global Equities to continue onward. The key short term support level of 275 was broken in October and BIGI almost reached the 265 support level shown on the next page. Given volatile price action over the past two months and the fact that BIGI seems to be suspended above support and below resistance, we are restating our neutral outlook for BIGI though we view the market with a bullish bias.

Strong Support Area

ST Support: 275-283

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Market Trends & Technical Analysis

Short-Term Support 1: 280-282 Short-Term Support 2: 273-275 Mid-Term Support: 1 255-265 Mid-Term Support: 2 240-245

Short-Term Target: 295-298