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Alpha Israel Fund

An Israeli equity fund investing in cutting edge technologies

December 2022 - Monthly REPORT

December report

SUMMARY

The Fund returned -5.5% (Class A, AUD) and -5.4% (Class B, USD) in December, while the TA 125 Index returned -3.8%.

The Fund faced a challenging month as the Israeli share market fell following the Bank of Israel’s decision to raise interest rates to control rising inflation. This followed a period when local stocks outperformed the global market during much of 2022.

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 31 Dec 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 -5.5% -10.2% -2.6% 2.1% 5.9%
Tel Aviv Stock Exchange 125 Index -3.8% -11.8% 7.5% 3.9% 5.9%

Swipe horizontally to see all columns

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 -5.4% -10.2% -2.1% 4.2% 6.8%
Tel Aviv Stock Exchange 125 Index -3.8% -11.8% 7.5% 3.9% 5.9%

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Performance Chart

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

Market Review

2022 ended with sharp declines across most equity markets around the world, as high inflation brought rising interest rates and increased fears of a global recession. The deteriorating global outlook brought a steeper decline in US markets than those seen in Israel.

The Nasdaq fell 9.0% in December, bringing the return for the year to -32.4%, the worst performance since 2008. Meanwhile, Israel’s TA-125 market index was down by 3.75% this month, driving losses for 2022 of 11.8%, with much of this during the second half of the year.

Israel’s consumer price inflation (CPI) increased to 5.3% year-on-year in November, from 5.1% in the previous month. This was largely driven by consumer demand, while the traded goods components of CPI appear to have moderated somewhat.

The Bank of Israel addressed growing inflationary pressure by raising interest rates by a further 0.50% to 3.75%, broadly in line with expectations. This is the highest interest rate since 2008 and reflects a tight labour market as the Israeli economy continues to grow strongly.

The Bank of Israel updated its macro-economic forecasts, predicting a 2.8% GDP growth rate for Israel in 2023 and 3.5% GDP in 2024.

Portfolio Commentary

The main detractors were the Fund’s real estate exposures, which detracted approximately 2.5% from total fund returns as interest rate expectations increased.

The exposure to the natural gas sector detracted approximately 1.0% as the price of natural gas fell significantly due to an unseasonably warm winter in Europe. This may impact demand for crude oil by as much as 1.5 million barrels per day, lowering demand for gas.

The Fund increased its exposure to Alony Hetz and Electra Real Estate in the property sector and reduced its position in Ilex Medical to 3% following strong outperformance.

The elevated risk environment led the Fund to maintain its bear call option position to provide portfolio protection following the earlier rally. The contracts expired unexercised following the market falls in December.

Portfolio protection has been extended to June 2023 on 40% of the Fund using derivative contracts on the Dow Jones and the TA-124 indices. This reflects many dual-listed companies enjoying stronger correlations with global markets than the local benchmark.

Stock in focus

The Fund holds an exposure of 5.5% in Check Point Software Technologies, an American-Israeli global leader in cyber security software.

The company is profitable, attractively valued, holds a significant net cash position, is well positioned in a market enjoying secular expansion, and is now focused on future growth opportunities.

It is expected to benefit from the end of cheap money as this will increase the barriers to entry as early-stage losses will be more expensive to finance. This is an environment that may also present attractive opportunities to acquire innovative businesses at attractive valuations.

PROFILE

FEATURES

  • APIR CODE PCL6469AU (USD Class) CTS0045AU (AUD Class)
  • REDEMPTION PRICEClass A: A$0.9487
    Class B: U$0.9639
  • 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.