February was characterised by a recovery in value sectors and profit-taking in more growth-orientated sectors. Financials (banks) and Real Estate rose sharply while the Technology sector, and particularly segments such as Semiconductors, Cybersecurity, and Cleantech, dropped significantly.  As an example, the Cleantech sector has declined 10% since the beginning of the year, following a very strong 2020.  The Fund is overweight these more growth-orientated sectors and underweight value, and its performance suffered as a result.

Top Holdings (alphabetically)

ICL Israel Chemicals Israel Fertilizers & Agricultural Chemicals

Nice Ltd Israel Application Software

Peninsula Group Israel Specialized Finance

Priortech Ltd Israel Electronic Components

Telsys Israel Technology Distributors

February was characterised by a recovery in value sectors and profit-taking in more growth-orientated sectors. Financials (banks) and Real Estate rose sharply while the Technology sector, and particularly segments such as Semiconductors, Cybersecurity, and Cleantech, dropped significantly.  As an example, the Cleantech sector has declined 10% since the beginning of the year, following a very strong 2020.  The Fund is overweight these more growth-orientated sectors and underweight value, and its performance suffered as a result.

Stock in Focus

This month we will focus on Big Tech 50, a recent investment by the Fund that is listed on the Tel Aviv stock exchange and structured as an R&D Partnership.  This is an innovative investment vehicle that plans to invest in 50 of Israel’s largest privately held Technology companies. The Partnership focuses on companies with a valuation of at least $250 million and annual revenue of at least $10 million that is growing by 30% or more year-on-year.

Big Tech 50 has already signed deals to purchase shares from existing shareholders in four such companies: Fundbox, Payoneer (which just announced a $3.3 billion-dollar IPO), Via and IronSource. Five more deals are underway. The biggest current investment is in Via, which has developed a ridesharing platform and was valued at $2.3 billion in March 2020.

In our opinion, this is a good example of an innovative vehicle that allows us to offer our investors access to promising privately held Technology companies based in Israel.

Macro Developments

Data from the Central Bureau of Statistics (CBS) shows that Israel’s GDP contracted by a real rate of 2.4% in 2020, a direct result of the coronavirus crisis. This was a more moderate rate of decline than the preliminary forecasts of -3% to -5% and a result of an increase in the fourth quarter GDP, which was despite the economy continuing to operate under substantial restrictions. This increase was supported by gains in all the main GDP components.

The rate of decline in Israel’s GDP in 2020 was amongst the lowest of the OECD countries, even though the number of days of closure in Israel was high compared to most other countries. A similar picture arises from an analysis of GDP per capita.  However, the rate of contraction in private consumption per capita was high compared to the OECD average, indicating that it was the positive performance of Israel’s exports of goods and services that bolstered its GDP.

A good example of Israel’s export-oriented Technology companies is Intel Israel. Intel Israel’s revenue in 2020 was $8 billion, up 14% from $6.6 billion in 2019. This figure represents 2% of Israel’s GDP and 10.3% of Intel’s overall annual revenue of $77.9 billion.  Intel Israel described 2020 as “the best year in its history”.

Looking ahead, the Bank of Israel anticipates that the current inoculation schedule will lead to a broad opening of the economy by the second half of 2021.  The domestic economy will then recover through the rest of 2021 and into 2022, during which time the rate of economic growth is expected to accelerate substantially.