November Report

• Israeli equities continued to deliver strong returns in November, as global share markets surged ahead following the US presidential election.
• A ceasefire on the northern border with Lebanon further boosted sentiment in the local equity market.
• The Fund returned +4.0% (Class A, AUD) and +4.5% (Class B, USD), while the TA 125 Index returned +3.7% in November.

CEO and Fund Manager Gabi Dishi and Managing Partner Sagi Ben-Yosef recently provided a webinar update where they discussed the current portfolio, broke down the factors driving recent performance, and shared valuable perspectives on the market trends the investment team is closely monitoring for the road ahead. A recording is available below for your review.

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 B.M.

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.

Isramco Negev 2 Limited Partnership

Israel

Oil & Gas Exploration & Production

Isramco Negev 2 LP engages in exploration and production of oil and gas in Israel. Its products include natural gas and condensate. The company was founded in 1989 and is headquartered in Petach Tikva, Israel.

Market Review

Israeli equities delivered strong returns in November, extending the five-month positive trend. This followed strong gains in the global market, led by the US, where investors drew confidence from the decisive outcome of the presidential and congressional elections. The prospect of tax cuts and deregulation measures pushed US shares to new highs, which also supported Israeli share prices.

Local market sentiment was further boosted by the announcement on 27 November of a ceasefire, which will see Israel and Hezbollah withdraw from Southern Lebanon. It is unclear if this will be sustained, but it has raised hopes that a solution may be found to the conflict in Gaza. Credit ratings agency Moody’s noted the ceasefire reduces the geopolitical risk level.

The US Federal Reserve (Fed) cut interest rates by a further 0.25% to 4.50% – 4.75% during November. Both the Fed and the European Central Bank are expected to reduce rates further in December, as inflation continues to trend down.

Israel’s annual inflation remained unchanged at 3.5% in October, still a little above the Bank of Israel’s 1.0% – 3.0% target. The Bank now expects inflation to fall to 2.8% over the next 12 months, despite a 0.5% month-on-month rise in October.

This enabled the Bank of Israel to leave interest rates unchanged when it met at the end of November, it also delivered a less hawkish commentary. Expectations of a gradual fall in inflation and a continued appreciation of the shekel are expected to allow the central bank to resume cutting interest rates in the September quarter of 2025. Investors are forecasting 0.25% – 0.50% of cuts by the end of next year.

Industrial production turned positive in September, increasing by 0.4%. This helped the economy accelerate in the third quarter, expanding by 3.8% year-on-year, although it is still 1% smaller than at the end of 2023. The technology sector increased the level of capital it raised in the September quarter, a trend which is expected to continue throughout the final three months of the year.

Portfolio Commentary

The Fund continues to take a positive view of Israel’s economic and share market prospects, despite the ongoing geo-political uncertainty. The Fund’s net equity exposure increased to approximately 93% in November, which supported portfolio returns in a rising market.

The main contributors to Fund performance during November were the financials, infrastructure and technology sectors. The banking sub-sector gained 7% as shares in the Tel Aviv Stock Exchange increased by 16%.

Isramco, the US-Israeli limited partnership that provides investors with exposure to the Tamar reservoir, announced good September quarter earnings results. It expects full year-profits of US$150 million. The stock is attractively valued at nine times current earnings, but the planned increase in output should grow profits to a level which imply an earnings multiple of 6.5 based on the current share price.

Global-e, the leading cross-border business to consumer e-commerce platform outperformed in November, gaining 36%. It announced strong September quarter earnings, with revenue up 32% year-on-year, a 35% jump in gross merchandise value, and a 42% increase in gross profit. The company announced a record number of new customers last quarter and expects to deliver continued strong earnings growth over the next quarter.

Global fintech Nayax provides a comprehensive operating system and payment platform for unattended machines (e.g. vending, office drink dispensers, laundry appliances, car wash, public transport, parking and EV charging, etc) and retailers. It reported stronger software-as-a-service (SaaS) revenue, but sales from hardware were weaker. The company expects 15% of revenues to flow into EBITDA in 2025, up from 10% – 11% this year, reflecting the strong operational leverage as the business expands.

Real estate developer and manager Azrieli Group also delivered strong September quarter earnings, announcing a 52% year-on-year increase in net operating income to US$640 million. Meanwhile, funds from operations reached US$480 million, up 35% since 2021. Its continued strong investment in data centres is expected to deliver further earnings growth over the coming quarters.

The world’s largest generic drug manufacturer Teva Pharmaceuticals was the largest detractor from relative returns, falling 9% in November.