Teva Pharmaceutical Industries Ltd. engages in the development, production, and sale of medicines. It operates through the following geographical segments: United States, Europe, and International Markets. The United States segment focuses on therapeutic area of central nervous system (CNS) portfolio, and is involved in the distribution business of generic, biosimilar and medicines, and over-the-counter (OTC) pharmaceutical products from the firm and third-party manufacturers to independent retail pharmacies, pharmacy retail chains, hospitals, and physician offices in the United States. The Europe segment offers OTC portfolio including SUDOCREM, NasenDuo, DICLOX FORTE, OLFEN Max, and FLEGAMINA brands in European Union, the United Kingdom, and certain other European countries. The International Markets segment provides its products to countries such as Canada, Israel, Russia, Latin America, and Japan. The company was founded in 1901 and is headquartered in Tel Aviv, Israel.
COMMENTARY
Market Review
Israeli equities delivered a strong finish to the year in December, extending the sharp rally that gathered pace through the final quarter. The local equity market rose by more than 5% during the month, supported by improving investor confidence and increased participation. Market strength was reflected not only in rising share prices but also in higher trading volumes and a strengthening currency, signalling broad-based support for Israeli financial assets.
Macroeconomic data released toward year-end pointed to a rapid acceleration in activity through the second half of the year. Economic growth reached an annualised pace of 11% in the third quarter and remained strong into the fourth quarter, according to the Bank of Israel’s composite indicators. Momentum has been supported by resilient domestic demand alongside a sharp expansion in high-tech manufacturing, which now accounts for around half of total industrial production. Output in the sector continued to benefit from sustained global demand, including defence-related activity and investment in advanced technologies.
Inflation trends continued to move in a favourable direction. The CPI declined 0.5% month-on-month in November, bringing annual inflation down to 2.4% and comfortably within the central bank’s target range. The moderation in inflation, together with a strengthening shekel and easing supply pressures, reinforced confidence that monetary conditions were becoming less restrictive.
Against this backdrop, the Bank of Israel lowered interest rates by 25 basis points to 4.0% in early January. In its accompanying commentary, the Bank noted that economic activity continued to expand, labour market constraints had eased modestly, and Israel’s risk premium had declined toward pre-conflict levels. These developments helped support sentiment into year-end and contributed to the strong finish for Israeli equities.
Portfolio Commentary
The Fund delivered a positive return in December, supported by strong gains across several core holdings, although performance was partly offset by weakness in selected consumer-facing names. Market conditions remained constructive into year-end, with investor appetite favouring companies exposed to improving domestic activity, tourism and real estate, and high-quality earnings profiles.
The largest positive contributor during the month was Teva, the world’s largest generic drug manufacturer with a growing portfolio of proprietary medicines. The share price continued its recovery as regulatory concerns eased and investor confidence improved around the company’s ability to execute on its long-term earnings strategy. Qualitau, an Israeli provider of semiconductor testing and reliability solutions, also delivered strong gains. Performance was supported by improving sentiment toward the semiconductor sector, with signs of stabilising demand and renewed confidence in medium-term growth prospects.
Fattal Holdings, one of Israel’s largest hotel operators with an extensive footprint across Europe, benefited from continued strength in travel demand and improving occupancy trends, as tourism activity normalised further into year-end. Azrieli Group, a leading Israeli real estate developer and owner of income-producing commercial properties and data centres, also contributed positively. The stock benefited from improving sentiment toward interest rate-sensitive assets and continued confidence in the group’s long-term data centre strategy.
The main detractor during the month was Retailors, a global retailer of footwear, sportswear and athletic apparel operating under brands including Nike, Foot Locker and Converse across Israel, Europe, North America and Australasia. The stock declined sharply amid ongoing pressure on consumer discretionary names, as investors remained cautious toward near-term consumer spending trends despite broader improvements in economic conditions.
Year in Review
Israeli equity markets have delivered an exceptional outcome over 2025, underpinned by a powerful combination of economic resilience, improving investor confidence and sustained capital inflows. Over the year, the Fund returned 41.9%, reflecting strong stock selection across a range of sectors. The broader Israeli equity market also performed strongly, with the Tel Aviv Stock Exchange 125 Index rising 51.0%, while the Tel Aviv Stock Exchange Small and Medium Cap 60 Index gained 38.1%. These outcomes were accompanied by a strengthening shekel and a marked increase in trading activity, highlighting the depth and breadth of the market recovery.
A defining feature of the year has been the continued commitment of global corporates to Israel’s technology ecosystem. NVIDIA expanded its presence in Israel, where capabilities acquired through its Mellanox acquisition have become central to the company’s high-performance networking business, now a meaningful contributor to group revenues. Alphabet, Google’s parent company, announced its largest acquisition with the purchase of Israeli cybersecurity firm Wiz, demonstrating the strategic value of Israeli intellectual property in securing global cloud infrastructure. Amazon continues to invest through its Annapurna Labs subsidiary and as a core participant in Israel’s cloud infrastructure initiatives. Collectively, these investments reinforce Israel’s role as a critical global hub for semiconductors, artificial intelligence, cybersecurity and cloud computing, and reflect long-term confidence in the depth and quality of local innovation.
Looking ahead, we believe Israeli corporate earnings are well positioned to remain strong into 2026, supported by easing monetary conditions, improving domestic activity and sustained global demand for Israel’s technology and defence capabilities. While short-term volatility is inevitable, the Fund remains focused on identifying high-quality businesses where market pricing does not fully reflect long-term fundamentals. We thank investors for their continued support and confidence, and look forward to the opportunities ahead.