Teva Pharmaceutical Industries Ltd. engages in the development, production, and sale of medicines. It operates through the following geographical segments: United States, Europe, and International Markets. The United States segment focuses on therapeutic area of central nervous system (CNS) portfolio, and is involved in the distribution business of generic, biosimilar and medicines, and over-the-counter (OTC) pharmaceutical products from the firm and third-party manufacturers to independent retail pharmacies, pharmacy retail chains, hospitals, and physician offices in the United States. The Europe segment offers OTC portfolio including SUDOCREM, NasenDuo, DICLOX FORTE, OLFEN Max, and FLEGAMINA brands in European Union, the United Kingdom, and certain other European countries. The International Markets segment provides its products to countries such as Canada, Israel, Russia, Latin America, and Japan. The company was founded in 1901 and is headquartered in Tel Aviv, Israel.
COMMENTARY
Market Review
Israeli equities recorded a sharp decline in June, with the TA-125 Index falling 9.5% and reversing much of the strong year to date performance. The index had returned approximately 21% through the end of May, before closing the first half of 2026 at approximately 9.5%. Declines were broad-based across sectors, with the insurance sector falling 14%, technology stocks declining 11%, oil and gas stocks declining 9%, and the banking sector falling 7%. The decline reflected natural profit-taking after a period of considerable appreciation, against a market increasingly sensitive to macro news, currency, and geopolitical developments. Analysts note that first-half gains stemmed largely from multiple expansion rather than earnings growth, with further advances likely to require fundamental delivery to justify current valuations.
The most influential geopolitical development was the emergence of a new framework agreement between the US and Iran. While the prospect of a diplomatic resolution had previously supported Israeli equities by lowering the geopolitical risk premium, the agreement itself introduced fresh uncertainty. Questions remain over implementation, durability, and how a rehabilitated Iran might reposition within the region.
On the macro front, the Bank of Israel cut its benchmark rate by 25 basis points to 3.75% on 25 May, its second reduction of 2026. The move was supported by inflation within the 1% to 3% target band and continued shekel strength. Israel’s currency has appreciated approximately 6% to 7% year to end June against the US dollar, reaching a 33-year high. The strength reflects capital inflows, a declining risk premium, and growing investor confidence in the local economy. Post month-end, the Bank of Israel delivered a further 25 basis point cut on 6 July, bringing the policy rate to 3.50%.
Portfolio Commentary
The Fund declined but held up modestly better than the broader market, with downside protection from convertible bond positioning cushioning weakness across core semiconductor and technology holdings. Losses were partly offset by a positive contribution from Telsys. Sharp price moves are viewed as largely valuation-driven rather than reflecting deterioration in business fundamentals.
The main contributor was Telsys, an electronics group whose subsidiary, Variscite, is a global leader in the System on Module (SOM) space. It rose 3% against the broader decline, supported by customer inventory normalisation and rising memory chip prices. Variscite’s product is critical yet a small share of end-customer costs, allowing pass-through of memory increases and a corresponding lift to its own revenue. A growing order backlog and rising customer advance payments already reflect this dynamic.
Qualitau, a semiconductor reliability testing equipment provider, was the main detractor, declining 31% and giving back much of its year to date gains. This came amid broad-based selling in Israeli technology names and some disappointment over the pace of growth in recent results. Some of the underperformance also reflects communication factors viewed as specific and transient, with active engagement underway. Conviction in the underlying business remains high, and the current valuation is seen as an opportunity.
Further declines came from Payton, a specialist electronics manufacturer, and Nayax, a cashless payment solutions provider, which fell 26% and 11%, respectively. Both moves reflected the broader technology selloff rather than company-specific news.
During the quarter, the Fund converted a meaningful portion of its semiconductor equity exposure into convertible bonds across Camtek, Nova, and Tower Semiconductor. The shift reflects a considered view on risk and reward given elevated valuations, retaining upside while adding downside protection. Options are used to hedge and capture pricing discrepancies between the convertibles and underlying equities.
A new addition is Ormat, a global renewable energy company, again via convertible bonds. Following strong performance from a shorter-dated series, the position was rotated into a longer-dated one with more meaningful protection. A written call and purchased put provide an added zero-cost hedge.
The portfolio remains well positioned across structural tailwinds, including AI-driven semiconductor investment and NVIDIA’s deepening role in the Israeli technology ecosystem. Recent weakness has enabled reinforcement of conviction positions at more attractive valuations, and the Fund enters the second half with confidence in the portfolio’s fundamentals.