July Report

The Fund returned 6.3% (Class A, AUD) and 6.5% (Class B, USD) in July, while the TA 125 Index returned 6.4%.

The Israeli share market performed strongly during July as the recent political unrest appeared to be calming down. The Fund performed broadly in line with the market index during the month as more attractive investment opportunities begin to emerge.

The Fund has performed well relative to the benchmark since the start of the calendar year, having returned over 12%. This is especially significant considering the heightened political risk environment in Israel and the Fund’s relatively low net market exposure.

We recently published an update on the political uncertainty in Israel, but it appears that the situation is now beginning to improve. Any further reforms are expected to require a broader political consensus.

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.

Bank Leumi LE IS

Israel

Diversified Banks

Bank Leumi Le-Israel attracts deposits and offers banking and financial services. The Bank offers consumer loans, mortgages, lease financing, insurance, mutual funds, and merchant banking services. Bank Leumi holds significant equity stakes in a number of non-financial corporations in Israel.

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.

Israel Discount Bank Ltd

Israel

Diversified Banks

Israel Discount Bank offers personal and business banking services. The Company's lending division also engages in corporate lending, factoring, commercial real estate, and asset-based lending. Israel Discount Bank operates in the United States and internationally.

Oil Refineries Ltd

Israel

Oil & Gas Refining & Marketing

Oil Refineries Ltd produces refined crude oil products. The Company provides a variety of products used in industrial operation, transportation, private consumption, agriculture and infrastructures. Oil Refineries also provide power and heat services (electricity and steam) to industrial customers, as well as infrastructure services (storage, pumping and truck loading of fuel products).

Market Review

The Bank of Israel decided to leave interest rates unchanged at 4.75% at its 10 July meeting. Its statement referred to the slowdown in price rises of both tradeable and non-tradeable goods over the last few months. Israel’s consumer price index fell to 4.2% in June from 4.6% in the previous month.

The Bank stated that it expects the current interest rate to be high enough to bring inflation back down to its 1.0%

– 3.0% target range and that long-term inflation expectations are within this band. The Bank hinted that rates could enjoy a period of stability, forecasting that interest rates would be in the 4.75% – 5.00% range in the second quarter of next year.

The Bank published data indicated strong economic activity levels, growth exceeding market expectations – GDP growth increased to 3.2% in the first quarter – and a tight labour market with record employment levels and very little unemployment.

Israel continues to enjoy a strong competitive advantage in the field of advanced manufacturing technologies. The country’s industrial manufacturing sector has undertaken a remarkable transformation, integrating innovative technologies with traditional manufacturing processes. Driven by the Fourth Industrial Revolution (4IR), Israel is well positioned as a leader in advancing and transforming traditional manufacturing processes.

According to McKinsey, 4IR refers to the digitisation of the manufacturing sector, fuelled by disruptive trends such  as data, connectivity, analytics, human-machine interaction and robotics. This concept closely aligns with advanced manufacturing, which utilizes innovative technologies to enhance products and processes. The 4IR develops solutions for manufacturing challenges such as operation optimisation, maintenance, inspection, and testing, and supply chain management. Industry 4.0 technologies such as sensing and imaging, 3d printing, robotics, and platform connectivity are driving innovative solutions that are bringing progress across the manufacturing sector.

Israel’s focus on advanced manufacturing and its ecosystem of innovation and R&D centres bring exciting opportunities. Large multinational companies including Applied Materials, Intel, Teva Pharmaceutical, and HP Indigo have established manufacturing sites in Israel, creating technologies that are revolutionizing global processes.

Portfolio Commentary

Nasdaq-listed Camtek is a leading developer and manufacturer of high-end inspection and metrology equipment for the semiconductor industry. It is one of the largest positions in the Fund. It announced that it has recently received orders for 42 systems from several tier-one semiconductor manufacturers. This has raised expectations of strong outperformance in the second half of 2022. A significant portion of the orders is for the manufacture of chiplet modules and High Bandwidth Memory (HBM) for heterogeneous integration. The systems are expected to be delivered during the second half of 2023.

Chiplet modules (very small computer chips which perform more complex tasks than regular chips) have emerged as critical components in enhancing computing power. Applications include artificial intelligence (AI), data centre processing, and gaming. The integration of chiplets with several HBM modules boosts the performance of processing units. These new orders underscore Camtek’s strong market position as a preferred supplier of inspection and metrology systems in a rapidly expanding market.

The Fund continued to strengthen its position in Nayex. The global fintech provides a comprehensive operating system and payment platform for unattended machines and retailers. It is delivering strong revenue growth and remains attractively valued.

The cost of US market portfolio protection is currently at historically low levels, reflecting a perception that investors currently face a low-risk environment. Short positions were closed aggressively in July as markets continued to move upward. The Fund took the opportunity to cost effectively extend the maturity (to December) of its international   equity protection.

Strong returns in the technology sector contributed to relative returns, as Camtek’s share price appreciated by 33%. Inmode Technologies, a global provider of energy-based, minimally invasive surgical medical treatment solutions, outperformed the market after it announced strong second quarter earnings results.

The other main contributor to the Fund’s relative returns was its natural gas exposure through Tamar Petroleum, which is engaged in offshore natural gas exploration and production. Its share price jumped 32% in July after the Israeli investor Aaron Frenkel acquired a further 20% stake in the company.