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Alpha Israel Fund

An Israeli equity fund investing in cutting edge technologies

February 2022 - Monthly REPORT

The first war between European countries since World War II

SUMMARY

In February, the Fund rose 1.4% (in AUD and USD).  By comparison, the Tel Aviv Stock Exchange 125 Index fell -1.3% (in ILS).

As discussed in last month’s newsletter, January was a crazy month with significant declines in markets around the world resulting from fears of rising inflation and expected Federal Reserve (and other central banks) interest rate hikes. February added further fuel to the fire with the escalation of hostilities between Russia and Ukraine – the first war between European countries since World War II.  Images of the devastation in Ukraine and the impact on human lives have shocked observers and markets alike, and served to remind us of the fragility of the world we live in and not to take our peaceful lives for granted.

PORTFOLIO

Top Holdings (alphabetically)

Alony Hetz Properties
Israel
Real Estate Operating Companies
FMS Enterprises Migun
Israel
Aerospace & Defense
Kenon Holdings Ltd
Singapore
Independent Power Producers & Energy Traders
Ratio Oil Exploration 1992 LP
Israel
Oil & Gas Exploration & Production
Telsys
Israel
Technology Distributors

Sector Breakdown

Capitalisation Breakdown

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 28 Feb 20221

Alpha Israel Fund Class A (AUD)

1 MTH 1 YEAR 2 YEARS P.A. 3 YEARS P.A. SINCE INCEPTION P.A.
Alpha Israel Fund Class A 1.4% 7.4% 8.9% 12.8% 10.7%
Tel Aviv Stock Exchange 125 Index 1.3% 28% 15.4% 12.8% 10.3%

Swipe horizontally to see all columns

Alpha Israel Fund Class B (USD)

1 MTH 1 YEAR 2 YEARS P.A. 3 YEARS P.A. SINCE INCEPTION P.A.
Alpha Israel Fund Class B 1.4% 8.2% 12.2% 14.5% 11.8%
Tel Aviv Stock Exchange 125 Index 1.3% 28% 15.4% 12.8% 10.3%

Swipe horizontally to see all columns

Performance Chart

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

This month’s biggest contributors were the Fund’s holdings in Rada Electronic Industries (in the Aerospace & Defence sector) which was up +30%, and FMS Enterprises (a global leader and pioneer in advanced ballistic protection technology) which was up +17%. Both companies have benefitted from the geopolitical developments in Europe.

FMS Enterprises is a value investment but also has a number of growth options. The company’s market cap is around US$300m without debt and with a cash surplus of over US$80m. Dividends are distributed regularly, and we are in discussions with the company to distribute a one-time significant dividend that will improve the return on equity. The company is also examining the potential expansion of production lines in the U.S., beyond the expansion it has already achieved there and in Israel.

Rada Electronic Industries – we increased our position in the company a month ago and it has worked well with the Russia and Ukraine story. The company continues to meet its aggressive growth forecasts and two institutional investors have been added as stakeholders.

Fattal (hotel chain) – benefitting from the removal of the coronavirus restrictions and skyrocketing prices for hotel rooms in Israel.

Razio Energies (petroleum and natural gas production) – we correctly identified the moves in the natural gas and oil markets and the positive impact on the company.

Kenon/Zim (global container shipping) – freight prices have remained high and the company continues to make healthy profits and appreciate in value.

Downside protection strategy – we have rolled our put options several times through a descending gap strategy, making money from the put options and significantly limiting the Fund’s losses when the market has corrected.

The main detractors this month were our holdings in Nice (technology software applications) and Ilex Medical (healthcare). Both were down -12% in February.

 

Stock in focus

Tower Semiconductor is a global leading foundry of high-value analogue semiconductor solutions, which provides technology and manufacturing platforms for integrated circuits (ICs) in growing markets such as consumer, industrial, automotive, mobile, infrastructure, medical, aerospace, and defense.

In mid-February it was announced that Intel Corp would buy Tower Semiconductor for US$5.4bn. Tower’s specialty technology portfolio, geographic reach, deep customer relationships and services-first operations will help scale Intel’s foundry services and advance its goal of becoming a major provider of foundry capacity globally. This transaction creates a globally diverse end-to-end foundry to help meet growing semiconductor demand and brings more value to customers across the nearly $100 billion addressable foundry market.

We originally built our position in the stock in January 2021 at a market cap of US$2.7bn and we provided an in-depth report about the company in our October 2021 monthly report.  Tower Semiconductor is the third “exit” in the fund within the Semiconductor sector since the Fund’s inception in January 2018. The other two were Orbotech, which was acquired by the American company KLA Tencor, and Mellanox, which was acquired by the American company Nvidia.

 

Macro developments

Thanks to the high-tech sector, Israel’s exports in 2021 reached US$145bn, representing an increase of about 20% compared to 2020. The most significant trend that has contributed to the change in the balance of power between goods and services is the growth in the export of programming services and non-start-up research and development services, which have grown 25% and 15% respectively.

According to data from the Central Bureau of Statistics (CBS), 2021 concluded with a 12.7% increase in the revenues of all sectors following a minimal increase of just 0.1% in 2020. The increase in 2021 is due to the rapid recovery in economic activity after the effects of the coronavirus crisis.

The pace of recovery in Israel stands out when compared to other OECD countries. In an announcement with the release of the national accounts data by the Central Bureau of Statistics (CBS), it was emphasized that the growth rate of overall GDP, and that of GDP per capita, was the highest among all OECD countries.

Furthermore, the Bank of Israel noted that for the first time since the outbreak of the coronavirus crisis, GDP had risen above the trend line from before the crisis. In other words, the current level of economic activity in Israel is now higher than the long-term trend – a development that indicates the rapid process of recovery that the Israeli economy has experienced since the coronavirus crisis.

PROFILE

FEATURES

  • APIR CODE PCL6469AU (USD Class) CTS0045AU (AUD Class)
  • REDEMPTION PRICEClass A: A$1.2570
    Class B: U$1.4238
  • FEES * Management Fee: 1.50% p.a. paid monthly in arrears
    Performance Fee: 20% above the Hurdle with a high water mark, paid semi-annually in arrears
  • Minimum initial investment $250,000
  • STRATEGY INCEPTION DATE 1 January 2018
  • BenchmarkThe goal of the Fund is to achieve long term capital growth by investing In Israeli and Israeli related companies, generating returns that consistently outperform the relevant benchmarks. Returns are not guaranteed.

Fund Managers

Gabi Dishi

Founder & CEO

Michael Weiss

Founder & Managing Partner

Aviran Revivo

Managing Partner

Sagi Ben Yosef

Managing Partner

Description

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.

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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.  Past performance is not a reliable indicator of future performance, 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.