The Fund returned -0.9% (Class A, AUD) and -0.2% (Class B, USD) in August, while the TA 125 Index returned -0.8%.
Israeli and global share markets weakened during August as longer-term global government bond yields rose upon expectations that interest rates would remain elevated for an extended period. This came despite growing sentiment that the US economy would avoid a recession and experience a ‘soft landing’.
Market Review
Israel’s inflation continued to moderate, falling faster than expected to 3.3% in July from the previous 4.2%. This led the Bank of Israel to leave interest rates unchanged at 4.75% when it met at the beginning of September.
Inflation remains above the 1.0% – 3.0% target range, leading the Bank to comment that further rate rises were a real possibility if inflation does not continue to moderate in line with expectations.
Israel’s GDP growth fell to 3.0% in the second quarter from the previous 3.2%, which was faster than market expectations. While this reflects a level of activity that is above the pre-Covid trend, the Bank noted that the pace of growth remains below the economy’s potential and several data points indicate it is slowing further.
Israel’s composite state-of-the-economy index increased by 0.17% in July, which whilst high compared to recent months, is low on an historic basis.
Portfolio Commentary
The Fund’s main contributor to relative returns in August was the position in Priortech, which saw a 35% increase in its market valuation over the month.
The main detractor from relative returns last month was the holding in the Israeli property investor, developer, and manager Electra Real Estate, which saw a 9% fall in its market valuation.
One of the Fund’s largest (4.5%) positions, Nasdaq-listed cyber security group Check Point Software Technologies, announced it had signed a definitive agreement to acquire Perimeter 81 for US$490 million, free of cash or debt. Perimeter is an Israeli cloud and network security business, which is a pioneer in security service edge (SSE) platforms.
This will help Check Point accelerate the adoption of secure access across remote users, sites, cloud, datacentres, and the internet. It aims to deliver the most secure and fastest SSE solution on the market.
Nasdaq-listed Camtek is a leading developer and manufacturer of high-end inspection and metrology equipment for the semiconductor industry. The stock continued to outperform in August as it benefited from rising demand for packaging solutions related to innovation in artificial intelligence (AI).
The company also tests the ‘bumps’ that are formed on the semiconductor wafer substrates connecting chips during production. The number of bumps produced is expected to increase tenfold over the next two years. To meet this increased demand, the company is expected to launch a new platform that will increase productivity and provide higher resolution in the manufacturing process.
In August the Fund sold its direct holding in Camtek. However, it maintained its exposure by establishing a position in its Israel-based parent Priortech, which owns Camtek and an unlisted semiconductor company called ‘Access’. This was a cheaper way to gain exposure to Camtek; the holding now represents a 5.5% position in the fund.
The credibility of Israel’s well-regarded technology sector was further enhanced in August. Nvidia CEO and founder Jensen Huang was discussing the company’s success in developing the computing infrastructure that supports powerful generative AI applications. He attributed this to the role played by the networking and switching technologies it gained when it acquired the Israeli high performance networking company Mellanox Technologies for US$7 billion in 2019.
The Fund maintains a 7% exposure to the natural gas sector, which is benefitting from increasing exports to neighbouring countries.
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.
