Covid continues to exert influence

The Fund rose 0.8% (Class A) and 1.2% (Class B) in November, underperforming the Tel Aviv Stock Exchange 125 Index, which rose 1.4%.  On the last day of the month Israeli indices declined by 1.5%, in line with many other equity indices around the globe, in response to concerns regarding the Omicron coronavirus variant.  Many questions remain unanswered regarding the new variant’s severity and the effectiveness of current vaccines.  Until these questions are answered equity markets are likely to remain fragile.

Top Holdings (alphabetically)

Airport City Ltd

Israel

Diversified Real Estate Activities

Alony Hetz Properties

Israel

Real Estate Operating Companies

Ilex Medical

Israel

Health Care Distributors

Kenon Holdings Ltd

Singapore

Independent Power Producers & Energy Traders

Priortech Ltd

Israel

Electronic Components

The main contributors during the month were Ilex Medical, Priortech, Kenon Holdings and Fox Group.  Ilex Medical rose 23% thanks to the hype surrounding coronavirus testing and their excellent 3^rd quarter results (see below).  Priortech continues to grow and expand its production capabilities.  More significant however is the market’s growing recognition of the value of Priortech’s ownership of Zhuhai Access Semiconductor Co, a Chinese semiconductor company.  We believe this is Priortech’s “hidden gem” and will benefit directly from China’s stated intent to be self-sufficient in semiconductor production.

The main detractors this month were the disruptive technology stocks, which detracted circa 2% from the Fund’s overall performance.  This segment now amounts to approximately 5% of the Fund, representing 6 companies.  We are confident in these positions and remain patient investors, believing that their potential will be recognised by the broader market in time.

Stock in Focus

Ilex Medical is the Fund’s biggest position at circa 5.5%.  Ilex is one of Israel’s leading companies in the medical diagnostics field and specializes in marketing, selling and supporting equipment, disposables and reagents to laboratories and healthcare establishments. Ilex is closely affiliated with leading multinational medical conglomerates like Abbott, Hologic and Grifols which provide a forefront solution in medical fields such as microbiology, blood banking, Hematology coagulation, I.V.F and more.

The Coronavirus epidemic has accelerated the company’s growth and at the same time allowed it to develop new growth engines in the field of medical equipment, bidding on HMO (health maintenance organisation) tenders and investing in innovative start-ups. The company continues to present record results with an excellent quarter indicating growth in all parameters.   EBITDA in the quarter increased by 72% compared to last year and amounted to USD37.5million.  Net profit attributed to shareholders in the quarter increased by 69% compared to last year and amounted to USD27million.

Macro Developments

According to the OECD report published at the end of November, Israel’s GDP growth will be 6.3% in 2021, up from 5% in its last forecast. Israel’s Ministry of Finance is more optimistic and predicts growth of over 7% in 2021. In its November 22 meeting, the Monetary Committee of the Bank of Israel (BoI) decided to keep the central bank interest rate unchanged at 0.1%.

The OECD wrote, “The progressing booster vaccination campaign, a gradually recovering labor market, and fading uncertainty will support domestic demand. Strong growth of high-tech services exports will continue. The recovery could be slower if the health situation deteriorates again, or the increase in inflation is stronger or more persistent than assumed in the projections. Growth could be stronger if accumulated savings are withdrawn more quickly.”

The OECD forecasts growth of 4.9% in Israel in 2022, up from 4.5% in its previous forecast, and sees growth of 4% in 2023.