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 traded in a split pattern during September, with the TA-125 Index edging up 0.5%. Demand concentrated in large-cap names that institutional and foreign investors can exit quickly and cheaply, leaving the broader market to absorb thinner volumes. The banking and insurance sectors led the market higher, with insurance-sector multiples pushing back towards all-time highs by month-end. Mid- and small-cap stocks lagged, and leveraged, rate-sensitive segments including income-producing real estate, infrastructure and renewable energy sat more exposed to the shifting rate backdrop.
Globally, escalation around the Strait of Hormuz pushed Brent crude above USD 100 per barrel, a genuine supply disruption that fed directly into global inflation pressure. The US Federal Reserve responded on 16 September with its first rate hike since 2023, raising its policy range to 3.75% to 4.00%, and US long yields surged past 5% to a 19-year high. That shift pulled institutional demand worldwide towards risk-free assets, with equity markets across major regions coming under pressure.
The Bank of Israel moved in the opposite direction, cutting its policy rate by 25 basis points to 3.25% in early September against annual inflation of just 1.5%. Even so, rising global rates proved dominant for local positioning. Caution was reinforced by the approach of the 27 October Knesset election, encouraging investors to rotate into liquid large-cap names rather than exit the market altogether. The Israeli economy continued to show resilience, with activity data pointing to third-quarter GDP growth of around 5% annualised and unemployment falling to 2.8% in August.
Portfolio Commentary
The Fund lagged the broader market in September. The shortfall reflected reduced exposure to banks and insurers ahead of further gains, an increased weighting in second-tier names at valuations the team viewed as attractive, and sharp quarterly declines in two core holdings.
Nayax, a cashless payment solutions provider and long-standing anchor position, was the main detractor, declining approximately 24% over the quarter. Reasonable second-quarter results were accompanied by a cut to cash-flow guidance, the second consecutive mid-year reduction, followed shortly by the announcement of the company’s largest-ever acquisition. The timing weighed on investor confidence. Even so, the team continues to view Nayax as an excellent business capable of 20% to 30% growth, with the acquisition contributing meaningfully next year. Encouragingly, CEO Yair Nechmad and CTO David Ben-Avi have recently bought shares in significant size, Nechmad over USD 8 million, and the share price has responded.
Stark Power, a US-focused power infrastructure and data centre developer in which Alpha holds approximately 9%, declined roughly 10% over the quarter despite positive corporate developments. The company disclosed negotiations to acquire a conventional gas-fired power station alongside an advanced-stage storage project under a tolling agreement, and signed project financing with Bank Hapoalim. Migdal, one of Israel’s largest insurance groups, invested approximately USD 15 million at USD 3.50 per share, around 40% above the Fund’s initial entry level.
Teva Pharmaceutical Industries, the world’s largest generic drug manufacturer, contributed positively on further turnaround progress. A ratings upgrade and a USD 5 billion debt refinancing at a spread of around one percentage point over US government bonds landed during the period, alongside the company’s first acquisition since the failed Allergan deal. The team views the financial turnaround as substantially complete, with further multiple expansion now dependent on execution of the drug pipeline.
Global-e Online, a provider of cross-border e-commerce enablement solutions, was recently added to the portfolio. The team views it as well positioned to benefit from structural growth in international direct-to-consumer trade and its strategic partnership with Shopify, supported by strong top-line momentum and high cash flow conversion.
Taking a longer-term view, the team continues to see attractive opportunities in second-tier holdings, where valuations remain compelling and fundamentals intact. The current large-cap bias should normalise as political uncertainty resolves, leaving the Fund well positioned as sentiment broadens.