The most prominent categories in the mutual fund market are the funds that divide the investment between bonds and stocks in a predetermined ratio. The idea behind this choice is to concentrate most of the investment in the bond market and season with a few stocks that can contribute to a higher yield but damage the portfolio at a relatively low rate in the event of declines.
In a certain sense it can be said that these funds imitate the provident funds and training funds in which there is a similar distribution between investments in assets that are considered solid such as bonds and assets with a higher risk, i.e. shares. While in the world funds of 6040 or 7030 are more accepted, in Israel the larger categories are more solid , i.e. those of 8020 and 9010. In this article we will focus on funds of the last type – 9010, which turns out to attract the most interest.
In any case, one can wonder about the logic of this strategy, which is accepted by many investors, who prefer to choose one fund that divides its focus between two different markets, when there is an option to divide the investments simply into 2 – 10% of the portfolio will be invested in the most successful equity fund in your eyes, and – 90% of the portfolio will be invested in the best bond fund in your opinion (or any other internal division at your discretion). Why should you invest in a fund that divides the manager’s attention between two completely different types of investments, each of which requires investment and attention? Obviously, if only 10% of the fund’s assets are invested in stocks, the time and effort invested in the analysis on behalf of the fund manager will be accordingly. Why not take this 10% and invest it in a manager who invests 100% of his energy only in stock selection, and the 90% in a manager who invests 100% of his energy In the bond market? This is a bit inaccurate, since these are ultimately investment houses with departments that provide analysis for all types of funds, yet the manager of the specific fund will focus on managing his fund, and in any case the effort required to choose two funds, each specializing in their field, does not seem much higher than choosing a fund One that spans two different areas.
>>>What I learned about investing in 2022 and will never forget
Despite this, many probably prefer to choose one fund that will manage all their investments, which is why the 1090 category is very large, and includes over 130 different funds. 6 of them manage over a billion shekels, another 13 manage over half a billion shekels, and another 40 manage over 100 million shekels. This is probably the largest category of funds today, which reflects the solid tendencies of the Israeli investor in mutual funds, that even when he wants to invest a little in stocks, he does so with the smallest possible percentage. There are even some funds whose investment policy is 595 – that is, 5% shares.
At the same time, at least in 2022 this strategy did not protect investors from declines, and the reason is of course the uniqueness of the year 2022 in which relatively sharp declines were recorded simultaneously in both the solid market and the equity market. This is a very large number of funds, with the difference being very significant, between annual declines of 16.5% and funds that presented a zero return, and one fund with a positive annual return. The wide declines in the market actually brought down a considerable portion of the funds to a negative return in a three-year period, despite the two good years that preceded the “terrible” 2022.
We note, however, that the funds that presented the best performance are funds whose investment definition is focused on sub-categories in the bond market, which in this particular year did well relative to the general bond market. These are mainly short-term investments or those that invested in government bonds that fell less, or a combination of the two categories (for example: “Government analyst solid portfolio up to two years”). The only fund that recorded a profit, Harel Concerni Dollari, invests in bonds in the Israeli market denominated in dollars . This is a fairly limited variety of investments, many of which enjoyed a positive year, also, but not only, because of the strengthening of the dollar. Some of the funds have an exclamation point (!) added to the fund’s name, which indicates an investment in high-risk bonds, meaning a low or unrated rating, which adds to the fund’s risk.
In the table where we will present the outstanding and the least successful, we will filter out all the funds that limited their investments to a certain area: short-term, indexed bonds, government bonds, high-risk bonds or those that focus on foreign exchange. We also ignored index-mimicking funds in the division of 1090. This filtering is intended to make the comparison more “fair”, i.e. between funds with similar investment policies. We did not exclude from the comparison funds that limited their bond portion to corporate bonds. After filtering, we reached over 60 different funds in the category that jointly manage billions of shekels.
Below is the table with the outstanding ones in the time frame of one year (year 2022), three years and five years, as well as those that presented the worst returns in these time frames. We have also added the three largest funds in the category.
Management fees: The management fee in the category converges to the 0.7% to 1% area. Over 30 funds charge between 0.7% and 0.8%, only 7 funds charge over 1%, and another 16 funds charge below 0.7%. Unsurprisingly, the funds that “excel” in excessive management fees drag on the margins of the returns table. “Altschuler Shachem Opportunity Bonds” charges the highest management fees in the category by far, 1.98%, an amount that is now considered excessive even in equity funds, and for this it achieved the worst return this year – 16.35%. In the time frame of 3 and 5 years, it is not noticeable Positively or negatively, but apparently the last bad year kept it very far from the top in the longer time frames.
Also the second in terms of the amount of management fees, “Migdal corporate investment portfolio in Israel” stands out negatively. It is the second worst fund in the last 5 years, with a loss of 6.13%. Let’s recall that most of the past years have been excellent for both bonds and stocks, so this is a negative return in a positive time period for investments. Part of the explanation for the poor returns is that 1.52% annually flows into the fund managers’ pockets.
The fourth in terms of high management fees shows the worst performance in the time frame of 3 years and 5 years. Investors who wanted to boast with kosher investments under the supervision of the Jewish community of the ultra-Orthodox community in Jerusalem and therefore invested in the “Ayalon Malchut Mahadrin” fund had to part with 9.7% in the last year, 10.43% in the last three years and 6.45% in the last five years. (Also the third fund in terms of fees Management is a kosher fund, Harel’s – it turns out that not only food costs more to be kosher).
again, It is hard to find a reason why investors keep their money in funds that charge much more than average over time and lag behind in terms of performance. The three funds we mentioned together manage close to NIS 400 million. At least Altshuler’s investors are beginning to realize that these management fees are unjustified, and the fund has suffered redemptions in 16 of the past 17 months. Migdal’s fund, on the other hand, managed to raise in half of the months of the last year despite the high management fees and poor performance. It is not clear which investors decide of their own free will to invest in funds of this type, or which advisors advise people to invest in such funds.
Two other funds performed poorly even without charging particularly high management fees. Barak’s fund, the smallest in terms of the volume of assets managed in the sector, has lost almost 6% in the last 3 years, and another Ayalon fund, “Ayalon Bina”, is the second worst in the last year.
Leading: On the positive side, the “Meitav Konzerni Plus” fund stands out for the better, which leads the three-year returns table and is in second place in a 5-year period, with a slight difference from first place. Even in the last year, it is among the funds that show less negative performance with a loss of less than 3%, not a big difference from the leaders “Harel Platinum” and “Kabin”. Despite the consistent successes, the fund is among the smallest in the field with managed assets of less than NIS 100 million. We note that, absurdly, the yield gap between it and Altshuler, which manages 226 million in the last year, is about 13.5% and in the last five years about 12%.
The only fund that manages to stand out favorably despite relatively high management fees of about 1% is “Porta Corporate Bonds” which leads the table in the last 5 years by a small margin, with almost a 16% return, and this despite showing decreases of 6.7% in the last year .
The big ones: Mor is a leader in terms of the size of the fund with over NIS 2 billion and a return of 10.4% in the last five years – not one of the leaders but not one of the worst either. Middling performance was recorded in the other timeframes tested. The second largest fund of Yelin Lapidot does not stand out positively and rather lags behind in the time frames examined, and the third of FOREST is one of the best in the last five years, and not far from the leaders in the last year.
In terms of redemptions and redemptions, Yelin Lapidot’s mid- and underperforming fund has suffered redemptions in all but two of the past 36 months. Moore’s Large Fund and FOREST’s Outstanding Fund have enjoyed fundraising in nearly each of the past 24 months. Moore’s leadership with one of the largest funds in almost every category that is examined is a strange thing to me, and it is possible that you are teaching about a well-oiled market setup, because if this is not the case, why do billions of shekels choose Moore consistently even though it does not lead in returns?