March Report

The Fund returned 0.9% (Class A, AUD) and 1% (Class B, USD) in March, while the TA 125 Index returned -0.4%. Over the first quarter, the Fund returned -1.3%, while the TA 125 Index returned -4.8%.

Global share markets performed strongly in March. The US Federal Reserve responded to the failure of three regional US banks by injecting US$370 billion of liquidity into the banking system. This reversed initial market weakness, with the technology-orientated Nasdaq performing particularly strongly.

Israel’s share market was little changed over the month but remains sensitive to the ongoing political turmoil. However, signs are emerging that the dispute concerning the proposed judicial reforms may now be solved through a professional legal committee.

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 Materials & 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.

Check Point Software Technologies

Israel

Systems Software

Check Point Software Technologies Ltd. develops, markets and supports a range of software and hardware products and services for information technology (IT) security and offers its customers a network and gateway security solutions, data and endpoint security solutions and management solutions.

Electra Real Estate Ltd

Israel

Real Estate Operating Companies

Electra Real Estate Ltd invests in real estate in Israel and abroad. The Company also invests in real estate development and construction independently or through partnerships.

Inmode Ltd

United States

Health Care Equipment

InMode Ltd. develops medical devices. The Company manufactures and markets platforms that harness novel radio-frequency based technology for both the patients and the practitioners. InMode serves customers worldwide.

Market Review

Annual inflation in Israel fell back to 5.2% in February from 5.4% in January; it is expected to fall to 5.05% in March and 4.70% in April, before rising in May to 4.75% as oil prices strengthen. Over the next 12 months, inflation is expected to average 3.0%, which is at the top end of the central bank’s official target range of 1.0% – 3.0%.

The Bank of Israel is expected to increase interest rates by 0.25% to 4.50% at its April meeting. It published a forecast that rates will average 4.75% over the first quarter of 2024, ahead of the market expectation of 4.50%.

While there are signs of an economic slowdown in Israel’s economy, sales volumes and employment are expected to rise in April. Labour demand remained high in March, especially in the hospitality and retail sectors.

The slowdown in Israel’s technology sector continued in March, across both manufacturing and services. The export of technology manufactured goods declined by 5.9% in the three months to 28 February, compared to the previous quarter. This appears to have been driven by falling export prices, due to an easing in demand, whilst volumes have remained fairly stable.

It appears that the rising interest rate environment is making it harder for Israeli technology companies – especially those which are more recently established – to raise development finance. This is significant as technology accounts for 16% of Israel’s GDP, 49% of Israel’s exports (ex-diamonds), and 4% of global venture capital investments (10 times Israel’s GDP share).

Portfolio Commentary

The largest contributor to relative returns during March was the outperformance by Ratio Energy, which rose 30%, and Tamar Petroleum, which increased by 23%. This followed the announcement of the acquisition of a 50% interest in NewMed Energy by ADNOC and BP, subject to due diligence and regulatory approval. NewMed is the 45% owner of the Leviathan Reservoir, an offshore gas field in the Mediterranean, in which Ratio also has a 15% share. NewMed also holds a 30% share of the Aphrodite gas field off Cyprus.

Real estate was the most significant detractor from relative returns during March, as Aloni Chetz fell by 12% and Medipower dropped 15%.

The Fund received a dividend from Bazan worth around 20% of its market value; the proceeds were invested in strengthening the new positions in Azrieli Group and Hilan.

The Fund also received the long-expected dividend in ZIM shipping, following strong financial reports, after which the Fund exited its holding in the company.