Market Review
While US equities edged lower, Israeli stocks extended their positive momentum. This was driven by continued investor confidence in a stabilising domestic economy and expectations of strong earnings growth in key sectors. Optimism around diplomatic efforts that the US and Gulf states might ease regional tensions also supported market sentiment.
A key theme emerging in 2025 is the increasing dispersion in stock performance within sectors. While 2024 was marked by broad-based gains across industries, investors are now focusing on company-specific fundamentals, particularly as Israeli businesses report results in March. This is likely to bring further volatility but also opportunities for active stock selection.
Israel’s annual inflation increased to 3.8% in January from the previous month’s 3.2%, which was slightly higher than market forecasts. Prices increased by 0.6% month-on-month due to higher costs of fresh fruit, food, and housing. Inflation is forecast to moderate to 2.4% over the coming year.
The Bank of Israel kept interest rates unchanged at 4.50% at its February meeting. However, its commentary maintained its hawkish stance, reflecting the very tight labour market. Markets are currently pricing in two or three 0.25% interest rate cuts by early 2026.
Israel’s Composite State of the Economy Index rose 0.6% in January, signalling continued economic resilience. The upward revision of November and December data suggests that growth momentum is improving, with private consumption and investment spending remaining supportive. Credit card purchases increased 3.1% over the first two months of 2025, reflecting healthy consumer demand.
Portfolio Commentary
The Fund’s long-only strategy took effect in February, with the Fund no longer using derivatives to protect the portfolio from major downward market moves. Sector allocation was a key driver of relative performance in February. Financials and natural gas outperformed, while technology stocks were weaker.
The largest contributors to the Fund’s performance in February were Bank Leumi and Bank Hapoalim. Their shares gained 6.6% and 6.8%, respectively, supported by strong earnings growth, higher net interest margins, and robust credit expansion. Israeli banks continue to experience resilient loan demand, particularly in the corporate sector.
Shares in Isramco – the US-Israeli partnership which is engaged in developing the Tamar Reservoir – rose 11% in January. This was driven by stronger-than-expected natural gas demand and an upward revision of production estimates.
The largest detractor from performance was the Fund’s holding in Camtek, the leading developer and manufacturer of high-end inspection and metrology equipment for the semiconductor industry. Its shares declined 12% as the semiconductor sector experienced volatility. Concerns over export restrictions and slowing global demand weighed on share prices. Despite this, the long-term fundamentals of the sector remain strong, supported by expanding AI and data centre infrastructure.
Global-E Online – the leading cross-border business to consumer e-commerce platform – also declined. This followed it issuing solid FY24 earnings but lowering its 2025 growth forecast due to uncertainty around US tariffs.
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.
i.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.
^. Inception 1st January 2018.
* Performance for periods greater than 12 months are annualised. Net performance figures are shown after all fees and expenses, and assume reinvestment of distributions. 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.
1. Inception date 1 January 2018. Performance shown is the continuous performance of both the current and previous strategies.
2. Prior to February 2025 performance has been simulated by Pengana from the monthly gross returns of the Alpha Long Equities Fund denominated in ILS. The simulation was done by: hedging currency exposure of the underlying strategy to the base currency of the stated class using three month forward rates; and, applying the fee structure of the stated class. From February 2025 inclusive, performance is of the Pengana Alpha Israel Fund.
3. Index returns shown are in ILS (Israeli Shekel).
Please note: This fund is only open to Wholesale Investors.
