The Fund returned 2% (Class A, AUD) and 1.8% (Class B, USD) in January, while the TA 125 Index returned 0.5%.
Global share markets made strong gains during January, with the Nasdaq rising 11%, having fallen 30% in 2022. However, Israel’s market was little changed over the month following solid outperformance over 2022, a relatively modest December sell-off, and investor concern around the new government’s policy agenda.
Market Review
Rising inflation and a tight labour market led the Bank of Israel to increase interest rates by 0.50% to 3.75%. This is still lower than the US Federal Reserve (4.50% – 4.75%) but above the European Central Bank rate (3.00%).
Israel’s inflation rate edged up to 5.3% in December and remains well above the central bank’s target of 1.0% – 3.0%, although it is one of the lowest of the OECD countries. The central bank is forecasting it will fall back under 3.0% by the end of 2023, with interest rates finishing the year at 4.0%.
Unusually in the present economic climate, the Israeli Government delivered a budget surplus of 0.5% of GDP, following a 4.4% deficit in 2021. However, the slowing economy is expected to bring a 2.5% fiscal deficit in 2023.
Israel’s economy appears relatively stable despite the global uncertainty. The central bank is forecasting GDP growth of between 2.5% and 3.5% in 2023 and 2024, while the IMF is expecting advanced economies to grow 1.2% in 2023 and 1.4% in 2024.
The slowdown in growth is due mainly to falling demand for Israeli exports, upon which the economy is highly dependent. The higher cost of investment financing and the impact of higher interest rates on household spending are further drags on growth.
This is not expected to lead to a recession and Israel’s government bond yield curve remains upwardly sloping, supporting the argument that a future recession is unlikely.
Portfolio Commentary
The main contributors to performance last month were in the technology sector and included Camtek (+18%), Perion Networks (+30%), and Maytronics Robotics (+11%). The main detractors were the Fund’s large weightings in Checkpoint and Payton, which did not participate in the global spike in technology stock prices.
Technology remains the Fund’s largest sector exposure. Falls in the sector’s share prices have brought more opportunities for long-term investors to invest in high quality businesses with strong potential to grow long-term earnings. However, valuation levels in some parts of this market still appear somewhat excessive.
The Fund began the year with a 14% exposure to the financials sector, reflecting its expectation of returns in excess of 10% per annum, unless there are any negative major macro events. The banks should benefit from higher interest rates as net margins expand, unless a prolonged recession impacts credit quality, offsetting this positive effect.
The energy sector remains attractive, with high quality businesses in both renewables and the oil and gas sectors, such as the Bazan Group and Ratio, offering attractive return potential.
Portfolio protection remains in place using derivative contracts on the Dow Jones and the TA-124 indices, which are not due to expire until June 2023.
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. 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.
