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Alpha Israel Fund

An Israeli equity fund investing in cutting edge technologies

November 2022 - Monthly REPORT

Despite monetary tightening, the Israeli economy continues to expand

SUMMARY

The Fund returned -0.7% (Class A, AUD) and -0.8% (Class B, USD) in November, while the TA 125 Index returned -3.8%.

During the month as the Israeli equity market weakened upon stronger inflation data that led to fears of higher interest rates. This followed a period when local stocks outperformed the global market for much of this year.

PORTFOLIO

Top Holdings (alphabetically)

Bank Hapoalim BM
Israel
Diversified Banks
Bank Hapoalim B.M. attracts deposits and offers personal, corporate and institutional banking services. The Bank offers corporate finance, cash management, foreign exchange, investment advice, loans, securities brokerage, custody services, investment banking, foreign trade financing, and treasury services. Bank Hapoalim operats in Israel, the Americas, and Europe.
Camtek
Israel
Semiconductor Equipment
Camtek Ltd designs, develops, manufactures, and markets automated optical inspection and metrology systems. The Company provides software solutions for the semiconductor industries, enabling manufacturers to improve yield and lower their production costs. Camtek serves semiconductors industry worldwide.
Check Point Software Technologies
Israel
Systems Software
Check Point Software Technologies Ltd. develops, markets and supports a range of software and hardware products and services for information technology (IT) security and offers its customers a network and gateway security solutions, data and endpoint security solutions and management solutions.
Medi Power
Israel
Diversified Real Estate Activities
Medipower (Overseas) Public Co. Limited operates as a full-service commercial real estate firm. The Firm owns and manages retail properties, shopping centers, and residential developments. Medipower serves customers worldwide.
Payton Planar
Israel
Electronic Components
Payton Planar Magnetics Ltd. is an Israeli high-tech company that designs and manufactures planar transformers. The Company produces transformers that are significantly smaller and lighter than conventional transformers and operate at 98% efficiency and at cooler than normal temperatures.

Sector Breakdown

Capitalisation Breakdown

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 30 Nov 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 -0.7% -0.4% 2.7% 4.1% 7.3%
Tel Aviv Stock Exchange 125 Index -3.8% -3.6% 11.6% 5% 6.8%

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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 -0.8% -0.5% 3.4% 6.2% 8.2%
Tel Aviv Stock Exchange 125 Index -3.8% -3.6% 11.6% 5% 6.8%

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Performance Chart

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

Market Review

Israel has lagged the global macro-economic cycle this year, having experienced levels of inflation well below the 8-10% seen in North America and Europe.

However, consumer price inflation (CPI) increased to 5.1% year-on-year in October, from 4.6% in the previous month and slightly ahead of the market’s 5.0% expectation. Monthly CPI jumped from 0.4% to 1.1% in October, well ahead of market expectations of 0.7%, leading to fears that this would lead to further increases in interest rates.

The Bank of Israel increased interest rates by 0.50% at its November meeting, reaching the highest level seen since September 2011.

Despite monetary tightening, the Israeli economy continues to expand, annualised GDP growing by 2.1% quarter-on-quarter in September. This is unexceptional on a historic basis, although it compares favourably with other major economies which currently appear close to recession.

Israel’s large export sector will nonetheless be impacted by the global slowdown as worldwide interest rates are increased to bring inflation under control. The Organisation for Economic Co-operation and Development (OECD) forecasts that Israel’s economy will expand by 2.8% in 2023, well below its trend rate of 3.5% – 4.0%.

Portfolio Commentary

The main contributors to performance last month were in the technology sector and included Perion (+15%) and InMode (+12%). The main detractors were the real estate companies Medipower and Norstar, which both fell by 12%.

The Fund sold its position in Delek Group when its subsidiary Ithica was floated on the London Stock Exchange in November.

The Fund’s position in the energy sector rose when it increased its stakes in Ratio Energies and Tamar Petroleum. These companies carry exposure to Israel’s Leviathan and Tamar natural gas fields.

The Fund has an established position in the energy company Bazan. Last month it also invested in a debt instrument issued by its parent company Petrochemical Enterprises, which is backed by Bazan dividends. This gives the bond an attractive yield-to-maturity of 10%.

Global market risk was managed this month by the establishment of a bear put spread that provides protection against a fall of up to 12% of the Dow Jones Index and which expires in June 2023. The Fund is also in the process of hedging local equity market risk by establishing a position that provides long-term protection.

Stock in focus

The Fund recently increased to 5.5% of total assets, its exposure in Payton, an Israeli technology company that designs and manufactures planar transformers.

The Company produces transformers that are significantly smaller and lighter than conventional units and can operate at 98% efficiency at cooler temperatures. They are used in a variety of fields, including the electric vehicle industry, data centres, the aeronautical and space industry, and digital currency mining.

During the first half of 2022, its raw material, transport, and labour costs increased and supply chain shortages delayed the delivery of finished goods. However, the Company’s sales grew by 54% compared to the first half of 2021 and new orders increased strongly.

The Company is conservatively managed, holds US$40 million of net cash, pays an attractive dividend yield, and is delivering stable growth in a fast-growing industry. The Fund, therefore, continues to increase its exposure to the Company.

PROFILE

FEATURES

  • APIR CODE PCL6469AU (USD Class) CTS0045AU (AUD Class)
  • REDEMPTION PRICEClass A: A$1.0039
    Class B: U$1.0191
  • 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. Please refer to the PDS for information regarding risks. 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.