Pengana Alpha Israel Fund 
Pengana Alpha Israel Fund 
A bounce for COVID underperformers
November was characterized by the strong bounce-back of sectors that had significantly underperformed due to the COVID-19 pandemic. The positive news from three pharmaceutical companies, Pfizer, Moderna and AstraZeneca, about the success of clinical trials for the vaccine and its imminent distribution, resulted in a significant rise in stock markets around the world. The rebound in the Israeli market came mainly from value companies in three sectors: Real Estate, Banking and Energy (Gas &Oil).
The Fund’s underperformance, relative to the market, in November was principally due to the significant underweight exposure to the three sectors mentioned above. As at the end of November, the Fund’s exposure to growth stocks was roughly 70% and value stocks 15%. A significant additional factor was the high premium paid for the Fund’s downside protection strategy (insurance) through the use of put options, which subtracted approximately 3% from the Fund’s performance. When equity markets have a strong run, as they did in November, insurance costs rise.
Priortech – listed on the TASE – 5% holding in the Fund
As highlighted in previous monthly reports, the two sectors that worked well for us in 2020 were Renewable Energy /Cleantech and Semiconductors. In the Semiconductor sector, we focus on the control process of the electronic chip manufacturing segment, which Israel is well known for. One of the Fund’s main Semiconductor investments is Priortech.
Priortech is a holding company that engages in printed and semiconductor circuits through its two semiconductor subsidiaries: Camtek (dually listed in Israel and on the Nasdaq), which offers optical inspection systems to the semiconductor manufacturing and packaging industries; and Access Semiconductor (a Chinese company). Both companies provide capital equipment, technologies and manufacturing services globally.
Priortech reported in November strong results and growth for the third quarter of 2020 and the first nine months of 2020. The Company reported a significant and consistent improvement in “Access” profitability and a record quarterly revenue for Camtek of $40.1 million, an increase of 23% compared to revenues of $32.5 million in the third quarter of 2019. Net profit on a GAAP basis totalled $6.0 million compared to net profit of $4.2 million in the third quarter of 2019.
Looking forward, we will continue to maintain the Fund’s high exposure to the Semiconductor sector for the following reasons:
The Bank of Israel kept its interest rate unchanged at 0.1% in November and moderated the expected extent of the decline in 2020 GDP.
The Bank’s Monetary Committee decided in its November 30th meeting to keep the Central Bank interest rate unchanged at 0.1%. The Bank also issued an interim update on its assessment of the situation regarding economic activity in the second half of 2020, including the period of the second economic shutdown, which lasted from mid-September through mid-October. The Bank noted the rapid recovery in economic activity in the third quarter, before the second shutdown, as reflected in the national accounts data. In addition, the Bank noted that the damage to economic activity resulting from the second economic shutdown was more moderate than the damage experienced in the first shutdown earlier in the year.
In the Bank’s own words: “The positive results in coronavirus vaccine tests are increasing optimism regarding the rapid return of the economy to a path of growth in the coming year. However, the adverse impact on the economy, and particularly on the labour market is expected to be prolonged, and the Committee will therefore continue to utilize a range of tools in order to increase the extent of the monetary policy accommodation and to ensure the continued orderly functioning of the financial markets”.
The Bank noted that its research division moderated the extent of the expected decline in 2020 GDP to a range between 4.5%-5.0% following the publication of growth data for the third quarter. Regarding 2021, the Bank kept its forecast between 4.5%-6.5%, depending on the extent to which the pandemic is brought under control.
The Ministry of Finance also released a revised forecast, which is expected to be used as the basis for the 2021 budget proposal, that GDP is expected to contract by a rate of 4.2%-4.8% in 2020, depending on the scenario (baseline or pessimistic), and to increase afterwards by a rate of 4.5%.
These are positive growth numbers for Israel compared to the OECD averages. Net foreign trade activity (exports minus imports) has contributed to this growth, with an emphasis on an increase in Israel’s high-tech exports. Furthermore, Israel’s GDP growth in 2021 is expected to be positively affected by the continued development of the country’s natural gas sector and the recent signing of normalization agreements with the United Arab Emirates.
 |
Alony Hetz Properties | Israel | Real Estate Operating Companies |
 |
Doral Group Renewable Energy R | Israel | Renewable Electricity |
 |
Mivne Real Estate KD Ltd | Israel | Real Estate Operating Companies |
 |
Priortech Ltd | Israel | Electronic Components |
 |
Telsys | Israel | Technology Distributors |
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. Class A is shown in $AUD, Class B is shown in $USD, Benchmarks 1&2 are $ILS. 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
Benchmark 1: Tel Aviv Stock Exchange 125 Index
Benchmark 2: Tel Aviv Stock Exchange Small And Medium Cap 60 Index
Please note: This fund is only open to Wholesale Investors.
