The drama in the markets does not stop for a moment. Another day of sharp declines in the markets in view of the question marks regarding the stability of Credit Suisse Bank – following the collapse of several small banks in the US – does not bode well for the returns of pension bodies and training funds in March.
Even before that, the declines recorded in the world’s capital markets last month led the pension funds and training funds to present negative returns, with the industry average hovering around 0.8% in the pension tracks for those 50 and under and around 1.5% in the general tracks of the training funds. Those who chose the stock-heavy routes, even suffered a greater decrease of over 2% in February, when the declines in all routes erased a significant part of the positive return recorded by the funds in the first month of the year.
● No initial public offering since the beginning of the year: the reasons for the weakness in the capital raising market in Tel Aviv
● At our expense: every additional percent increase in interest yields the bank a profit of hundreds of millions of shekels
The negative returns came after the leading indices in the Tel Aviv Stock Exchange recorded sharp declines of 3.5% in the Tel Aviv 35 index and 5% in the Tel Aviv 125 index, with the Tel Aviv 90 and the Tel Aviv 60 indices falling by double the rates. The leading indices in New York also recorded declines in February, But more moderate. The Dow fell 4.2%, the S&P fell 2.6% and the Nasdaq fell 1.1%.
This means that those who were significantly more exposed to indices abroad, especially those who increased their exposure to leading European indices such as the German DAX (up 1.6%) or the French CAC (up 2.6%) managed to moderate the negative returns .
The person who led the returns table in February is Altshuler Shaham’s provident and pension company, which has been known for years as someone who advocates broad exposure to the world markets, and especially to the stock markets.
Altshuler Shaham Ended February with the smallest negative return in both the young people’s pension tracks and the training funds (general and equity tracks), and by a considerable margin from the competitors. The pension fund ended February with a negative return of 0.6% and the training fund was the only one to end the month with a negative return of less than 1%.
In the equity routes, apart from Altshuler Shaham, only an analyst ended up with a negative return of less than 2%, when the difference between them was 0.6% in February.
“Last month was characterized by an acceleration in the process of the legal reform that affected the local market,” explains Danny Yardani, VP of Investments at Altshuler Shechem. “In addition, we saw a resurgence of fears about inflation in the world fueled by reports in the US that led to a sharp increase in yields in the US and Israel Albeit with a slightly greater force, which caused the opening in the margins of the corporate bonds and a drop in the stock market.”
How did it affect your results?
“We were caught by this when our exposure to Israel in terms of risk is relatively low. Our stock portfolio is largely not in Israel, and this is not a new thing but a trend of many years. This is not due to the fact that we thought that foreign markets would produce better or worse results than the Israeli market, but From spreading the risk. A large part of our portfolio is still in Israel, but Israel is a small part of the global economy and we asked ourselves how to be exposed. Gilad (Gilad Altshuler, owner and co-CEO of the investment house, RA) has spoken out on the matter many times, so this dispersal is not related to the legal reform or the current security situation in Israel.
“Another thing that played in our favor is the risk we have in Israel in part of the debt, and this risk is very low, with a relatively short loan period. The reason for this is that we think the interest rate is still expected to rise here and the yield curve in February did not represent any opportunity.”
Indeed, a negative trend was recorded in the local corporate bonds with the Tel Bond 20 index, the Tel Bond 40 index and the Tel Bond 60 index falling by 2.9%, 2.1% and 2.5% respectively.
How did the strengthening of the dollar against the shekel affect the returns?
“We have exposure to foreign exchange in general, and it is true that the major part is to the dollar. This is another aspect of looking at risk management, and it must be remembered that exposure to the dollar has a correlation to equity exposure abroad. We have seen that the specific situation Israel has found itself in affects the currency and the exposure to the dollar provides protection as things worsen in terms of the reform and opposition to it.”
Exposure to foreign markets
For Altshuler Shaham, this is a continuation of a leadership trend that has characterized the industry since the middle of last year, and strengthened towards the end of 2022 when the stock exchanges abroad opened gaps in front of the Tel Aviv Stock Exchange, which allowed the investment house to benefit from the large exposure to markets abroad. However, a look at the cumulative returns in the last 3 and 5 years shows that the long months in which the provident company and its pension “spent” at the bottom of the returns table illustrate that it still has many months of excess return needed to return and lead even in the longer time frames.
“In the last seven months, a more positive trend has begun for us. The fact that we were underexposed in Israel for a long period of time played in our favor. But things always happen, and with a more controlled view, you have to understand that you can’t put all your eggs in one basket, but you have to spread risk, and the market is starting to realize this, and you see the The effect is in the results,” says Yardani.
As mentioned, the returns in February erased the good start of the year for the long-term savings institutions. While in January the average in the general courses of the training funds was 2.2%, in February it amounted to about 1.5% on the wrong side of zero, all that the public was left with from the beginning of the year with a positive return of about 0.7%. In the equity routes, an average positive return of 4% was recorded in January, and it dropped after February to about 1.5%.
“The American economy will know how to overcome the collapse of the banks”
As for the collapse of three banks in the United States in the last week and their effect on the markets in March, Yardani explains that the more you look with your eyes and hear the assessments in the world, it seems that this is a one-off event. “This is not a systemic risk and an event that the Fed responded very quickly and in a good way. The American economy will know how to overcome it because the banks today are much stronger than they were in the past, so there is no real danger to the financial system. When the world is in the process of raising interest rates so sharply, it is possible that some banks will disappear, but the economy America is strong, lessons will be learned and they will know how to overcome this crisis.”
He adds that instead of expecting another interest rate hike or even two in the US, the market now expects that there will be one hike and then the interest rate may even go down. Jordani is not convinced that this is the right move. “The main task of the Fed is to maintain stability. This week we saw the inflation data in the US (6% at the annual level) according to which it is indeed expected but still alive and kicking. So there is a moderation, but not yet at the level the Fed would like to see. That is why it must deal with inflation and cannot allow considerations of the stability of a particular bank Too much weight, at the price of not addressing inflation. Therefore, it is possible that inflation will moderate a bit from this event, but the Fed remains with the emphasis of addressing inflation. So maybe the interest rate will not rise as much as they thought it would, but it will certainly remain high in the near future. So there will be companies that will have more difficulty With the high interest rates, but there are companies that still work very well.”