If you look at the calendar, it seems that there is still a whole month left until the end of the civil year, but in the world of investments, the year 2023 is actually already at the door. The month of December usually takes place on Wall Street at a more relaxed pace, due to the holidays.
So here ends a year full of drama in the markets, and for the coming year we asked senior investment managers to suggest what to do with a million shekels in 2023.
We also wanted to know, for those who have a much lower amount – up to NIS 100,000, whether the cases offered for them can also be built according to the same rationale.
These are the answers we received from the investment experts.
IBI mutual funds
To concentrate the main exposure abroad in the American market
“The complexity of investing in the bond market is the difficulty in finding the comfort zone between the inflation scenario and the recession scenario,” says Ella Alkalai, chairman of IBI Mutual Funds.
“If you estimate that inflation will continue to run rampant and even raise its head, this means that the value of money and the yield will erode. An increase in inflation will most likely lead to additional interest rate increases, which will lead to a further increase in the yield and create capital losses along with growing fears of future bankruptcies,” Alkalai says.
According to her, “In the scenario that we are already on the way to a recession and that the interest rate increases that have already been made will slowly suppress inflation, the world will start talking about a flight to safety and interest rate cuts, and the bond market will yield capital gains for those who have already invested, but the window of opportunity for high returns is at risk Relatively low will be closed.”
In terms of geographic exposure, IBI recommends “concentrating the main exposure abroad in the American market. In shares in Israel, we recommend focusing on the larger companies included in the Tel Aviv-125 index.
“From an industry point of view, there are several sectors that we estimate will continue to present reasonable risk-to-opportunity ratios. The performance of the banking system is benefiting from the tailwind of inflation data and interest rate increases, alongside a credit portfolio in which the level of risk is low compared to the past, thanks to the regulatory restrictions. The return on capital is attractive and expected to be around 12%- 15%”.
In addition, Alkalai explains that “the field of renewable energy is also interesting – both in Israel and in the world.
Ella Alkalai, Chairman of ABI Mutual Funds / Photo: Ilan Bashor
“Investors in the field should distinguish between R&D companies, whose chances are huge but the investment risk is high, start-up companies and companies whose core activity is selling electricity.”
According to her, “the declines in the markets have created quite a few opportunities, some of them may still be at a high risk level, but in our estimation the strong companies will grow from their sources, and they are also prepared for opportunities to purchase options to strengthen future growth rates.”
The structure of the portfolio proposed by Alkalai includes an allocation of 80% for investment in bonds, of which 25% (the investment portfolio screen) will be invested in government bonds, 50% of the portfolio in corporate bonds and 5% in deposits.
The remaining component of the portfolio will be allocated to stocks, according to a distribution of 10% to Israel and 10% to stocks abroad.
And what about a NIS 100,000 bag?
“It is possible to apply the principles presented in the proposed case, through mutual funds and index-mimicking funds,” Alkalai explains.
“In a portfolio built in 20/80, it is possible to combine mutual funds with such a policy in a spread among several manufacturers, and add to that investment through funds that mimic or are active on bond and stock indices,” she says.
Altshuler Shaham
45% of the portfolio in shares – the rest consists of debt and cash
At Altshuler Shachem, they estimate that “the volatility in the markets will continue in 2023 as well”, and accordingly, Guy Lillental, director of the overseas shares department and an investment consultant at the company, says that “the construction of the portfolio takes into account both the recent declines in the stock market, which created interesting opportunities, and the declines in the bond market , to achieve a positive return and close to the index at a relatively low risk level. The portfolio is designed for an investor with a medium risk appetite, for a period of at least three years.”
The portfolio offered at Altshuler Shaham consists of 45% shares, the main part of which is in the American market. This market, Lilienthal explains, “knows how to respond to crises the best and the fastest. In our opinion, it came out of the crisis stronger than other economies.” The equity component is divided there into 16% (portfolio screen) in the S&P 500 index, another 12% in the technology-biased NASDAQ index, 5% in European stocks – mainly food companies, 1% in the copper miners index called COPX, and the balance of the equity component – 11% in shares in Israel.
The balance of Altshuler Shaham’s portfolio (55%) consists of debt and cash. (25%) index-linked bonds with a maturity (average life) of approximately 5 years, half in Israeli government bonds and half in high-rated Israeli corporate bonds; 10% in bonds of companies abroad (ETFs for bonds with a speculative rating such as HYG, or ETFs for bonds with an investable rating such as LQD); And the balance of the portfolio (20%) will be invested in shekel bonds of the Israeli government, with a short maturity of about one year, and in cash.
And who wants to close NIS 100,000?
Lilienthal: “The principles presented in the proposed case can be applied, even in the case of NIS 100,000. We would recommend the use of imitation funds and mutual funds. It is important to note that we are in a turbulent period in the markets, but also an opportunity for a patient investor.”
Best case management
In the bonds, they gave priority to the non-linked part
Meitav’s proposal, presented by VP of Investments Aviram Naa, “was built with an investment in mind for a period of several years. It is important to note that the investment horizon is one of the most important data when we come to build an investment portfolio for the client. years, 15% Israeli government shekel bonds with a 4-year maturity and a share of 25% for corporate shekel bonds with a maturity of up to 3 years.
“We gave priority to the non-contiguous part over the contiguous one,” Naa explains. Because according to him, “the assessment is that the central banks, in Israel and in the world, are determined in their war to eradicate inflation, so that in a period of years (to which the case is directed) there may be a recession and a sharp decrease in the rate of inflation.”
Aviram Naa, Vice President of Investments at Meitav Investment Portfolio Management / Photo: Yeh’ach
The shares will make up 30% of the portfolio, and Nea notes that this is also in the concept of a portfolio for several years. “Of the shares, 12% will be invested in the TA-125 index, an index that represents the Israeli stock market and is influenced by the Israeli economy, which has been booming in recent years. 13% will be invested in the S&P 500 index. The relative pricing levels of this index have undergone a downward adjustment in recent months, following the increase in interest rates and the expectation of a slowdown in the global economy. It is difficult to predict its direction in the short term, but in the long term it is very likely that the investment will pay off.” The balance, 5%, will be invested in the NASDAQ index, which the companies in Naa say will use the coming period to become more efficient.
What about a NIS 100,000 bag?
At best, it is noted that the same principles that were proposed can be used in a case amounting to one million shekels, and a smaller case can also be managed according to them.
Securities summits
Equal distribution between shares in Israel and shares abroad
Roi Moshe, Vice President of Investments at Psagot Securities, points out that the new year will open with a high level of interest rates in Israel and around the world. “.
Roi Moshe, Vice President of Investments at Psagot Securities / Photo: Moshik Biran
This situation has led to the fact that today there is “meat” in the bond channel, which means that the channel is trading at a significantly higher yield to maturity than we were used to in recent years, and is truly a very worthy investment alternative.
Psagot’s recommended portfolio includes 15% in Israeli stocks; 15% shares abroad, of which most of the exposure as a whole is to the USA; 25% in exposure to index-linked corporate bonds; 25% in exposure to shekel-denominated corporate bonds; and 5% exposure to linked government bonds with a short MHA. Another 15% share of the portfolio includes exposure to NIS government bonds with a medium-long term.
And what about a NIS 100,000 bag?
“Everything recommended above can be implemented, using an investment portfolio made up of managed mutual funds and basket funds or mutual funds.”
Active case management
Focus on the leading indices, overweighting financial stocks
Portfolio management activists estimate that the interest rate hike will lead to signs of a slowdown that will be felt at the beginning of 2023.
Ziv Kirschenbaum, manager of the commercial customer desk, says that “it can be seen that inflationary factors, such as sea freight prices, oil prices and other commodity prices that have affected us in recent years (as a result of the Corona crisis and the war between Russia and Ukraine) are on a downward trend.”
Ziv Kirschenbaum, manager of the commercial customer desk at active portfolio management / photo: Ofra Salomon
If the trend continues, the price drops will come, and then the rate of interest rate increases will slow down.
30% of the portfolio of activists is recommended to invest in stocks, 17% of them in Israel (55% of the stock component of the portfolio). The activists recommend focusing on the leading indices, “while giving overweight to the financial stocks that show good results.
“Other sectors that can give an excess return are the defense industries, the communication companies and companies in the infrastructure sector.”
In stocks in the US, which make up 14% of the portfolio (45% of the stock component), there is a recommendation to focus on the technology sector, while giving overweight to the software, chips and cyber industry. They also note that “other industries that are recommended to pay attention to are banking and health, including medical equipment “.
The balance of the portfolio (70%) will be in bonds. “We estimate that the interest rate of the central banks will reach a rate of 3.75% in Israel and 5% in the US at the end of the course of interest rate hikes,” notes Kirschenbaum.
That’s why they recommend there bonds with a maturity of up to 4.5 years, of which 39% of the portfolio is shekels (55% of the bond component) and the balance – 32% of the portfolio – is linked.
“In this type of portfolio, it is possible to generate an internal yield of about 5% and ‘lock’ it for the long term,” the activists point out.
And what can be done with NIS 100,000 cases?
“In this case, we recommend using the principles presented and applying them to index products in order to obtain dispersion.
“Also, by investing in indices, a large dependence on a single stock is avoided.”
Infinity Case Management
Focusing on sectors that will benefit from the macro picture
The one who shows cautious optimism is Lior Wax, CEO of Infinity Investment Portfolio Management. “The interest rate hikes that have accompanied us over the past year are beginning to show their effect, and it seems that the increases in inflation rates will also begin to moderate soon,” he notes.
He further adds that “Israel is on its way to establishing a government. After five election campaigns, the business sector can now expect governmental stability.
“Such a government will be able to pass a budget, make decisions, transfer funds, promote projects and continue developing the state’s infrastructure.”
According to him, “Governmental stability (in the country, 8.000) will contribute to the continued growth of the business sector in Israel on many issues, such as transportation, infrastructure, real estate and budgets for other projects.
“Therefore, we anticipate that companies operating in these core areas will be able to benefit from significant development budgets in the coming period.”
He points out that an investment portfolio built today for a period of at least five years should include a significant component of shares, while managing risks of geographical and sectoral dispersion, with a bias towards the local market and a focus on sectors that will benefit from its macro picture, such as infrastructure, banks and insurance.
According to Wax, “the solid part will include an investment in bonds with a 4-5 year interest rate, so that in case of continued volatility in the markets, we can stay with the bonds until maturity and avoid capital losses along the way.”