The Fund returned -5.5% (Class A, AUD) and -5.4% (Class B, USD) in December, while the TA 125 Index returned -3.8%.
The Fund faced a challenging month as the Israeli share market fell following the Bank of Israel’s decision to raise interest rates to control rising inflation. This followed a period when local stocks outperformed the global market during much of 2022.
Market Review
2022 ended with sharp declines across most equity markets around the world, as high inflation brought rising interest rates and increased fears of a global recession. The deteriorating global outlook brought a steeper decline in US markets than those seen in Israel.
The Nasdaq fell 9.0% in December, bringing the return for the year to -32.4%, the worst performance since 2008. Meanwhile, Israel’s TA-125 market index was down by 3.75% this month, driving losses for 2022 of 11.8%, with much of this during the second half of the year.
Israel’s consumer price inflation (CPI) increased to 5.3% year-on-year in November, from 5.1% in the previous month. This was largely driven by consumer demand, while the traded goods components of CPI appear to have moderated somewhat.
The Bank of Israel addressed growing inflationary pressure by raising interest rates by a further 0.50% to 3.75%, broadly in line with expectations. This is the highest interest rate since 2008 and reflects a tight labour market as the Israeli economy continues to grow strongly.
The Bank of Israel updated its macro-economic forecasts, predicting a 2.8% GDP growth rate for Israel in 2023 and 3.5% GDP in 2024.
Portfolio Commentary
The main detractors were the Fund’s real estate exposures, which detracted approximately 2.5% from total fund returns as interest rate expectations increased.
The exposure to the natural gas sector detracted approximately 1.0% as the price of natural gas fell significantly due to an unseasonably warm winter in Europe. This may impact demand for crude oil by as much as 1.5 million barrels per day, lowering demand for gas.
The Fund increased its exposure to Alony Hetz and Electra Real Estate in the property sector and reduced its position in Ilex Medical to 3% following strong outperformance.
The elevated risk environment led the Fund to maintain its bear call option position to provide portfolio protection following the earlier rally. The contracts expired unexercised following the market falls in December.
Portfolio protection has been extended to June 2023 on 40% of the Fund using derivative contracts on the Dow Jones and the TA-124 indices. This reflects many dual-listed companies enjoying stronger correlations with global markets than the local benchmark.
Stock in focus
The Fund holds an exposure of 5.5% in Check Point Software Technologies, an American-Israeli global leader in cyber security software.
The company is profitable, attractively valued, holds a significant net cash position, is well positioned in a market enjoying secular expansion, and is now focused on future growth opportunities.
It is expected to benefit from the end of cheap money as this will increase the barriers to entry as early-stage losses will be more expensive to finance. This is an environment that may also present attractive opportunities to acquire innovative businesses at attractive valuations.
Founder & CEO
Founder & Managing Partner
Managing Partner
Managing Partner
The Pengana Alpha Israel Fund invests in listed Israeli companies that produce cutting edge – both high and low tech – technologies. These Israeli listed companies have developed solid intellectual property coupled with strong global distribution.
The Fund offers Australian investors diversification within global equity exposure to a unique and promising market that is very much skewed to industries and technologies that are either limited, or do not exist, in the Australian market place, such as: the semiconductor industry, solar and water treatment technology, aerospace and electronic defence industries, and cyber security technologies.
1.Net performance figures are shown after all fees and expenses, and assume reinvestment of distributions. Performance figures are calculated using net asset values after all fees and expenses, and assume reinvestment of distributions. Index returns shown are in ILS (Israeli Shekel). No allowance has been made for buy/sell spreads. Please refer to the PDS for information regarding risks. Past performance is not a reliable indicator of future performance and may not be repeated, the value of investments can go up and down.
2. Inception 1st January 2018.
3. Annualised Standard Deviation since inception
4. Relative to Tel Aviv Stock Exchange 125 Index
Please note: This fund is only open to Wholesale Investors.
