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10Industry PerspectiveDow Jones Israel Select Sector IndexesSMRoy Regev is spending a lot of time talking about Mediterranean gas pipelines and Israeli supermarkets. But that is to be expected of someone whose company has recently come out with exchange-traded products (ETPs) tracking the stock performance of both.Roy is the Chairman of KSM, a top ETP company in Israel. It is a subsidiary of Excellence Nessuah, a leading financial asset manager in that market, with more than 500 employees and almost US$17 billion in assets under management. KSM offers more than 130 products listed on the Tel Aviv Stock Exchange (TASE), with more than US$5 billion of AUM. The firm's ETPs are among the most widely quoted in that market and account for 10-15% of the exchange's daily trading volume. As the Israeli financial markets and economy have risen in recent years, explains Roy, so has the interest and usage of index-based products."We have ETPs for equities, commodities, currencies and bonds," he says, calling from an airport terminal in Frankfurt. "In 2003, when we first created our ETP product line, no one quite knew what they were and what they were for. Today, nearly 15% of the daily volume on TASE is conducted through ETPs; a large portion of the manageable equity assets are through ETPs; and the majority of financial advisors seem to prefer them to other alternatives." He continues, "Institutional clients have been the greatest force in the expansion of this market. They've helped to drive growth in an amazing pattern for ETPs and for our firm in particular."First in the marketRoy explains that his company has a long-standing relationship with Dow Jones Indexes. In fact, he says, their first collaboration "revolutionized" the industry in Israel."In 2004, we licensed the Dow Jones Industrial AverageSM for an ETP. It was among the first foreign-based index products in Israel, and it was very influential in the creation and expansion of that market. The Dow is very well known in our market, so it was a great way to introduce the concept to Israeli money managers. We worked to educate the local market and explain the benefits of index-based investing."In July 2011, KSM licensed the Dow Jones Israel Select Consumer IndexSM and the Dow Jones Israel Select Oil & Gas IndexSM as the basis for ETPs. Developed-nation market statusRoy believes that based on his recent conversations with clients and prospects, there is growing interest from foreign investors in the Israeli markets. The country is classified by most organizations as a developed market, and it has one of the highest growth rates in terms of GDP in its peer group."Money managers know that a developed country's market gives them good protections. There's an expectation of accuracy in reporting, as well as transparency. The Israeli market has these elements."And since Israel is now considered a developed country as far as its markets are concerned, major financial information companies, like Dow Jones Indexes, are putting Israeli stocks into their global rather than emerging-market groupings."At the same time, I think that we're as affected by global trends as anyone. The growth of the ETP market globally helps to drive our market as well. Combine that with our own home-grown expansion and you understand our success."Roy RegevChairman, KSM

11Jamie Farmer, Dow Jones Indexes' Executive Director of Global Business Development and Communications, wants to talk about commodities. By most measures, the trend points to increasing allocations to commodities among institutional and retail investors, which are both drawn to the diversification, inflation hedging and pure fundamental investment propositions offered by physical materials such as energy, industrial metals and agricultural products."Personally, I also think that's why our commodities indexes are so popular," Jamie says. "Because even the most sophisticated investor can use them as a benchmark to track a wide constellation of investments. For the investors savvy enough to have commodities in their 'arsenals,' so to speak, knowing that we offer such solid, innovative indexes really helps."As the discussion turns to new commodity indexes, Jamie says that he believes that the new Dow Jones-UBS Roll Select Commodity IndexSM will be a great addition to the index market: It is designed to mitigate contango by rolling into the futures contract showing the most backwardation, or the least contango, selecting from contracts with nine months or fewer until expiration. Backwardation is a term that refers the "shape" of the commodities future curve-simply put, when short-dated contracts are more expensive than longer-dated contracts, which means "rolling" involves selling high and buying lower. Contango occurs when the reverse situation is true, and rolling involves selling lower and buying higher.In commodity indexes, returns come from three sources: price return, collateral return and rolling return. The latter refers to the return that can be generated when rolling from a short-dated futures contract into a longer-dated contract. Since these contracts will have different prices, the transaction will result in a roll return. This return can be positive (during instances of backwardation) or negative (during instances of contango). "Rolling contract positions has an impact on commodity index performance. That's why we have this index: to take this factor into account. When you're dealing with the issues of forward pricing, you're always concerned about what's going to happen at the end of the contract," he explains.Offering an alternative routeJamie says that he views the Dow Jones-UBS Roll Select Commodity IndexSM as evolutionary, taking additional factors into account in determining which contract the index rolls into next. He continues by saying that the concepts behind this index are complex but not beyond the grasp of the firm's sophisticated commodities clients.And as just the latest addition to the Dow Jones-UBS Commodity IndexSM family of benchmarks, the Dow Jones-UBS Roll Select Commodity IndexSM represents one more reliable tool for gaining exposure to and measuring the performance of a broad universe of commodities."Voracious information consumers""Clients who use our Dow Jones-UBS Commodity IndexesSM are really voracious information consumers. They like our indexes because we tell the whole, unvarnished story. Like the old expression, 'We don't make the news. We just report it.'"Specialty CornerDow Jones-UBS Roll Select Commodity IndexSM Jamie FarmerExecutive Director of Global Business Development and Communications, Dow Jones Indexes