Market Review
Israel’s share market finished the quarter strongly, delivering returns in line with the continued upward trend in global equities. The market gained 3% in March and 8% over the quarter.
Israel faces the ongoing risk that the war in Gaza will escalate, as fighting rumbles on, albeit at a lower level of intensity than in previous months. The conflict continues to drag on economic activity, with the contraction in December quarter GDP growth being revised up to 20.7%.
Inflation continues to edge downwards, falling to 2.5% in February from 2.6% in January. This is expected to nudge up over the coming months, with the market expecting inflation of 3.0% over 2024.
Despite this, investors are expecting a more than 50% probability that the Bank of Israel will cut interest rates by a further 0.25% from the current 4.50% rate at its April meeting. This reflects a cooling of core inflationary pressures in February. The Bank is forecasting interest rates will fall to 3.75% – 4.00% by the end of this year.
In further positive news, Fitch removed Israel’s credit rating from negative watch, which was maintained at A+. It stated that: ”keeping the rating at A+ during such a complex geo-political period can be seen as an expression of confidence in the Israeli economy and the economic policy the government is leading.”
Industrial production bounced back in January, expanding by 3.8%, having contracted in December.
Portfolio Commentary
The Fund retains a positive view of Israel’s economy and share market, despite the current geo-political challenges. This reflects attractive valuation levels following underperformance last year, continued falls in inflation, a competitive exchange rate and a strong corporate sector. Accordingly, the Fund retains a high net equity exposure.
Returns in March were driven by improved December quarter earnings and strong gains in residential real estate stocks that reflected expectations of lower interest rates.
The strongest contributors to relative performance in March were the Fund’s holdings in Nasdaq-listed technology group Nice, global fintech Plus500 and generic drug manufacturer Teva Pharmaceuticals.
Medical diagnostics group Ilex Medical also contributed to relative returns in March after it reported better than expected earnings. The company has excellent earnings growth prospects and the Fund continues to maintain its holding in the stock.
The largest detractor from relative returns was the Fund’s long-standing position in electrical components manufacturer Telsys. This followed a 50% reduction in its order book, reported in the latest quarterly earnings. However, it seems that customers are in many cases merely delaying placing their orders until components are needed. This is because they are obliged to pay a 50% deposit, which places a greater strain on finances in periods of higher interest rates. While the company may experience weaker sales over the next six months, the share price underperformance seems excessive. Therefore, the Fund took advantage of this to increase its position in the company.
The Fund maintains exposure to the bare printed circuit board manufacturing company Priortech and its parent, Nasdaq-listed Camtek, which is a leading developer and manufacturer of high-end inspection and metrology equipment for the semiconductor industry. The Fund maintains a positive view of the semiconductor industry and took advantage of recent share price weakness to increase its position.
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.
