Phoenix Financial Ltd. engages in the provision of insurance products. It operates through the following business segments: Life Insurance and Savings, Health Insurance, Property and Casualty Insurance, Pension and Provident, Financial Services, Insurance Agencies, and Credit. The Life Insurance and Savings segment includes life insurance products and related coverage, and management of pension and retirement. The Health Insurance segment offers nursing insurance, medical reimbursement insurance, surgeries and transplants, dental insurance, travel insurance, and foreign workers insurance. The Property and Casualty Insurance segment is composed of motor insurance, motor property, other liabilities, and property and other subsegments. The Pension and Provident segment deals with the management of pension funds and provident funds through The Phoenix Pension and Provident. The Financial Services segment is composed of investment management activities, including mutual funds, ETFs, brokerage services, underwriting services, market making in various securities and other services. The Insurance Agencies segment represents the activities of pension arrangement agencies and other insurance agencies in the group. The Credit segment refers to financing against postdated checks, clearing, and management of credit vouchers services, financing against real estate properties, loans and credit, equipment financing and supplier financing. The company was founded by David Hachmi in 1949 and is headquartered in Givatayim, Israel.
COMMENTARY
Market Review
Israeli equities outperformed in May, with broad-based gains across sectors. Investor sentiment improved as regional tensions appeared to ease and foreign investors returned in force, purchasing around US$1 billion in Israeli equities during the month. This brought total foreign equity inflows to approximately US$3 billion year-to-date and reinforced confidence in the resilience of Israel’s capital markets.
Bank stocks were the standout, accounting for the majority of foreign inflows and driving index-level performance. Trading volumes spiked during the Tel Aviv Stock Exchange’s semi-annual index rebalancing, with daily turnover reaching its second-highest level on record. Despite the rally, valuations remain attractive relative to global peers and leave room for further upside if stability persists.
Economic fundamentals remain solid. Israel’s GDP expanded 3.4% in the first quarter of 2025, supported by strong consumer demand and rising capital investment. The labour market remains tight, with job vacancies still elevated despite a modest decline in April. High-tech service exports continued to grow, rising 12% year-on-year. Capital raising also remained robust, signalling ongoing investor confidence and a supportive backdrop for the shekel.
Natural gas exports rose to record levels in 2024, further supporting the current account surplus. Inflation remained contained, and the May CPI is expected to be flat, with the annual inflation rate tracking at 3.4%. Forward expectations continue to moderate, helped by a stronger shekel and improving external balances.
The Bank of Israel left interest rates unchanged in May and reiterated a cautious stance amid ongoing risks. Markets currently price in a low probability of a rate cut before November, with expectations for a gradual easing cycle through 2026. Credit rating agencies continued to acknowledge the strength of Israel’s economy, emphasising the robustness of recent macroeconomic data despite the ongoing geopolitical backdrop.
Portfolio Commentary
The Fund delivered a positive return in May, with strong contributions across semiconductor, technology, and financial holdings. Performance was driven by both recoveries in earlier underperformers and continued strength in high-conviction positions. No material detractors were recorded during the month.
Leading the gains was Qualitau, a provider of reliability testing systems for semiconductor manufacturers, which rose 44% amid improving sentiment toward the sector. While industry demand remains uneven, the company’s specialised offering positions it well for any rebound in capital spending.
Telsys, a distributor of electronic components and advanced communication systems, gained 28% following a solid first-quarter result. Signs of stabilisation emerged, although a full recovery in its Verisight unit is yet to materialise. The stock trades on a forward P/E of approximately 14.
Another strong contributor was Phoenix Holdings, one of Israel’s largest insurance and investment groups. It reported core net income of NIS 625 million and a return on equity of 23.6% under IFRS 17. Despite its recent share price performance, the stock remains attractively valued at 8–9 times earnings.
Bank Leumi and Bank Hapoalim also added meaningfully to returns. Israeli banks announced their first-quarter results during May, with sector-wide figures showing strong growth in consumer credit and historically low loan loss provisions. Reported net profits were affected by a sector-wide special tax introduced to help fund government war-related spending, which raised the effective profit tax rate from 17% to as high as 26%. Despite this, underlying profitability remained solid, with the sector delivering an average return on equity of 15.4%.
Inrom, a building materials manufacturer, made a positive contribution after announcing plans to invest NIS 240 million in new production capacity over the next three years, supporting its long-term growth profile.
The Fund had a net equity exposure of 104.5% at month end, with the modest leverage reflecting a broad range of attractive opportunities. This included increased allocations to existing positions and the addition of two new holdings. Scope Metals, a supplier of industrial metals and plastics, serves sectors such as construction and energy. Camtek, a provider of inspection and metrology equipment for semiconductor manufacturing, focuses on front-end wafer processes and advanced packaging. Both companies complement the Fund’s exposure to Israeli innovation and industrial growth.