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Alpha Israel Fund

An Israeli equity fund investing in cutting edge technologies

November 2023 - Monthly REPORT

Israeli equities bounced back strongly

SUMMARY

  • Israeli equities bounced back strongly in November, reflecting the strength in global share markets.
  • Falling inflation in Israel is expected to allow the Bank of Israel to begin lowering interest rates next year, which should provide support to share prices.
  • The Fund returned 5% (Class A, AUD) and 5.3% (Class B, USD) in November, while the TA 125 Index returned 8.1%.

We recently recorded a Portfolio and Investment Update webinar, which is available below for your review.

PORTFOLIO

Top Holdings (alphabetically)

Argo Properties NV
Netherlands
Real Estate Operating Companies
ARGO Properties N.V. operates as a real estate company. The Company focuses on multi-family and commercial properties.
Azrieli Group Ltd
Israel
Real Estate Operating Companies
Azrieli Group Ltd. is a property company. The Company owns a portfolio of shopping centres, offices, and has an adjacent business in senior assisted housing. Azrieli is both a developer of new buildings, and an owner and manager of its existing assets. Azrieli Group's activities are in Israel with emerging activity in data centers platform in the United States and Europe.
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.
Bank Leumi Le-Israel BM
Israel
Diversified Banks
Bank Leumi Le-Israel attracts deposits and offers banking and financial services. The Bank offers consumer loans, mortgages, lease financing, insurance, mutual funds, and merchant banking services. Bank Leumi holds significant equity stakes in a number of non-financial corporations in Israel.
Nice Ltd
Israel
Application Software
NICE Ltd provides solutions that manage and analyze multimedia content and transactional data, such as telephony, web, radio and video communications. The Company's solutions include integrated, multimedia recording platforms, software applications and related professional services.

Sector Breakdown

Capitalisation Breakdown

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 30 Nov 20231

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 5% 0.0% -0.2% 1.8% 6%
Tel Aviv Stock Exchange 125 Index 8.1% -4.8% -4.2% 5.8% 4.7%

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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 5.3% 2.6% 1.1% 3.1% 7.2%
Tel Aviv Stock Exchange 125 Index 8.1% -4.8% -4.2% 5.8% 4.7%

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Performance Chart

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

Market Review
Israel’s share market benefitted strongly from the steep rebound in global equities during November. While the ongoing military operation remains a source of uncertainty, the local equity market has historically been driven much more by global economic trends and investor sentiment. Historically, past military conflicts have generally had a limited impact on Israel’s stock market. This in part reflects the economy’s focus on high-tech businesses, many of which are driven by exports and some of which are sensitive to military spending. The technology sector accounts for almost 20% of the country’s GDP, over 34% of the government’s total tax revenue, and 54% of total exports.

Israel’s consumer price index eased to 3.7% year-on-year in September from the previous 3.8%. Inflation is expected to have eased further to 3.6% in November, with month-on-month price levels remaining constant. This enabled the Bank of Israel to keep interest rates unchanged at 4.75% when it met in late November.

The Bank said in its announcement that as the recent stability in the financial markets becomes entrenched and the inflation environment continues to moderate toward the target range, monetary policy will be able to focus more on supporting economic activity. The interest rate announcement and the Bank’s commentary led to expectations of measured rate cuts from the start of 2024. The market is now pricing in a reduction in interest rates of 0.25% in January.

The resilience of Israel’s economy was reflected in the latest report published by Moody’s, the global rating agency, on 21 November, some weeks after the terrorist attacks and outbreak of the war with Hamas. It highlighted its significant resilience to past domestic and external shocks, which it attributed in part to the country’s high growth rate, supported by the technology sector. Despite the negative short-term impact on the economy of military activity and the mobilisation of reservists, Israel has significant buffers for shock containment. Moody’s confirmed its positive long-term outlook on the economy.

Portfolio Commentary
The strongest contributors to relative performance in November were the Fund’s holdings in the real estate and technology sectors. Property companies Azerieli Group and Alony Hetz saw share price gains of 25%, while technology group Nice jumped 23% upon strong earnings results.

The main detractor from relative returns was the holding in medical diagnostics group Ilex Medical which underperformed upon weaker-than-expected quarterly results.

The Fund increased its holding in Nasdaq-listed NICE, which is now 4.5% of the fund.

The Fund sold its entire position in InMode which provides energy-based medical technology solutions. This followed a conference call with the company after it reported quarterly earnings which lagged its forecasts. The company is struggling more than previously thought to grow sales, making it a less attractive investment, despite the low valuation multiple of earnings.

The Fund also sold its position in ballistic technology group FMS which had been held in the Fund over a long period. The company benefited greatly from the demand for ceramic vests and the stock has outperformed accordingly. While the company remains attractively valued, other investment opportunities appear more compelling at the present time.

The Fund maintains a small exposure to Nasdaq-listed Global E, the world’s leading cross-border end-to-end platform for brands and retailers. Last year it acquired ‘Flow Commerce,’ a technology-based cross-border e-commerce software solution for emerging brands. The Fund will continue monitoring the company’s progress against its profitability targets.

The Fund maintains a large holding in electrical components manufacturer Telsys, which underperformed modestly after publishing its recent earnings report. However, the controlling shareholders expressed confidence in the company and continued to increase their shareholding, as it has done over recent quarters.

The Fund also holds a position in Tamar Petroleum which currently represents 3.7% of the total portfolio. The company owns a 16.75% interest in the ‘Tamar Reservoir’ which produces natural gas. The company’s largest shareholder made a tender offer for 10% of the stock at a premium to the market price, which the Fund accepted. The Fund has now established a position in Isramco, which is a US-Israeli limited partnership that provides investors with exposure to the Tamar reservoir. The Fund expects to optimize its exposure to the reservoir by switching between the two stocks.

Israel’s banking sector is attractively valued and delivers a return on equity of approximately 12%. The main risk is the exposure to the local market, but attractive fundamentals lead the Fund to remain confident in retaining its position.

PROFILE

FEATURES

  • APIR CODE PCL6469AU (USD Class) CTS0045AU (AUD Class)
  • REDEMPTION PRICEClass A: A$0.9888
    Class B: U$0.9776
  • 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 and may not be repeated, 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.