Innovative medical technology delivers almost 45% for the month

The Fund returned 3.7% (Class A, AUD) and 3.5% (Class B, USD) in July, underperforming the TA 125 Index which returned 6.8%.

The main contributors for the month were our position in InMode (INMD), which was up 45% due to strong second quarter results and a positive outlook, and our exposure to Natural Gas companies Delek (DLEKG) and Ratio (RATI), which were up 16.5% and 10% respectively.

The main detractors this month were the 3D printing company Massivit (MSVT), which was down 23%, and Checkpoint (CHKP), which was flat. The latter is a relatively large position at 4% and will be releasing its 2^nd quarter results in August.

Top Holdings (alphabetically)

Bank Hapoalim BM

Israel

Diversified Banks

Bank Hapoalim B.M. attracts deposits and offers personal, corporate and institutional banking services. The Bank offers corporate finance, cash management, foreign exchange, investment advice, loans, securities brokerage, custody services, investment banking, foreign trade financing, and treasury services. Bank Hapoalim operats in Israel, the Americas, and Europe.

Camtek

Israel

Semiconductor Equipment

Camtek Ltd designs, develops, manufactures, and markets automated optical inspection and metrology systems. The Company provides software solutions for the semiconductor industries, enabling manufacturers to improve yield and lower their production costs. Camtek serves semiconductors industry worldwide.

FMS Enterprises Migun

Israel

Aerospace & Defense

FMS Enterprises Migun Ltd. manufactures ballistic panels and sheets for military protective gear and vehicle parts. Among the Company's customers are security forces in Israel and abroad.

Kenon Holdings Ltd

Singapore

Independent Power Producers & Energy Traders

Kenon Holdings Limited operates various businesses worldwide. The Company's businesses engage in the development and operation of power generation facilities in Latin America, the Carribbean, and Israel. Kenon also owns businesses in the automotive, foundry manufacturing, international shipping, and solar technology industries.

Medi Power

Israel

Diversified Real Estate Activities

Medipower (Overseas) Public Co. Limited operates as a full-service commercial real estate firm. The Firm owns and manages retail properties, shopping centers, and residential developments. Medipower serves customers worldwide.

After a negative star to the year, July proved a more positive one for the Israeli equity market, as it was for many markets around the world. We do not, however, see many reasons for optimism, and remain cautious in our approach. While there is no doubt that the sharp declines witnessed in the first half of the year created opportunities, time will tell whether markets continue to rise.

The key points to note during the month were:

• Strong financial results led to a significant rise in the share price of about 45%. This increased our position to approximately 4% of the Fund, but we elected to pare it back to our original positions size of 2.5 to 3%. This stock is discussed in more detail in the Stock in Focus section below.
• This was an opportunistic position in the Fund, established when a significant shareholder determined to sell a large holding at a discount to the prevailing share price. We have already sold half of the position.
• In addition to the 6.5% of the Fund held in Israel’s Natural Gas sector, we have also initiated a position in Bazan, Israel’s largest integrated refining and petrochemical facility. Bazan provides a variety of products used in industrial operations, agriculture, and transportation. This is a short-term position, similar to the one in Kenon. We believe the company can benefit from the current environment and generate cash flow of 30 to 40% of its market cap over the next year.
• We currently hold about 10% of the Fund in Israel’s three leading banks. The banks represent an attractive risk reward relative to the market, generating a return on capital of 12%, distributing healthy dividends, and benefiting from increases in interest rates.
• Downside protection. We are currently implementing separate strategies on global and Israeli markets. Globally, due to the high market volatility, we are implementing put spreads (buying put options close to the money and selling put options far from the money) to reduce our hedging costs. In Israel, due to the lower volatility, we are implementing our downside protection by buying put options close to the money, protecting the portfolio from a further decline over 5%.

Stock in Focus: InMode

InMode (Nasdaq: INMD) is a leading global provider of innovative medical technologies. The company develops, manufacturers, and markets devices harnessing novel radio-frequency (RF) based devices that strive to enable new emerging surgical procedures as well as improve existing treatments. InMode has leveraged its medically accepted minimally invasive RF technologies to offer a comprehensive line of products across several categories for plastic surgery, gynaecology, dermatology, otolaryngology, and ophthalmology.

The Company released its 2^nd quarter results in July, showing quarterly revenues of US$113.5 million, above the consensus of US$103 million, and representing an annual growth of 30% compared to the corresponding quarter last year. Adjusted earnings per share were $0.59, growing at 15.7% year on year. InMode’s management also raised its sales forecast for 2022 and expects revenues of US$430 million, which embodies 20% growth for the whole year and about 13% for the second half.

The bottom line is that InMode continues to show strong results with high growth rates and high profitability while properly controlling and managing the supply chain. We continue to believe that InMode is well positioned to strengthen its position, accumulate market share, support growth, and drive future profitability.

Macro developments

After the expected renewed acceleration in economic growth in the second quarter (Israel’s exports were at a record high) a number of preliminary indicators point to a slowdown in economic growth at the end of the second quarter and the beginning of the third quarter.  This was recently reflected in a moderation in the rate of increase of the Composite State of the Economy Index.

The inflation forecast for the coming year remains at about 2.9%. We believe supply inflation in Israel will moderate in 2023, with several points supporting our view:

(1) The prices of sea freight declined this week (for the 22nd week in a row) by another 1% to a level about 35% lower than the peak level in September 2021.

(2) The retail inventories component in the U.S (United States) continued to increase in June (+2%) taking the rise to +20% YoY. Walmart indicated this week that it will have to offer large discounts to get rid of excess stock of clothing and ‘general goods’.

On the other hand, in contrast to the recent trend, global commodity prices increased this week, although the shekel strengthened sharply in July.

During the month, Fitch reaffirmed Israel’s “stable” A+ credit rating. Fitch predicts that economic growth will be 4.6% in 2022 and 3% in 2023, with the high-tech sector continuing to demonstrate strong performance, and against the backdrop of the slowdown in the global economy, the effect of inflation on consumption, and labour shortages in certain sectors. Fitch continues to point out the country’s strong external accounts and highlights the moderating effect of gas agreements on price levels in Israel.