Last week we were pleasantly surprised by the performance of the fund managers in the Tel Aviv 125 sector, who for the most part managed to beat the ratio index (except for the last year). We wanted to check if this is only one sector or if it can be said that this is a wider phenomenon. To this end, we have moved to examine the performance of investing funds by industry and not by index or market size of shares. How have the managers focused on banks, real estate or other sectors of the capital market performed?
First, we were surprised to find that it was a rather poor supply. There are almost no funds that track the indexes.
And it’s not like there aren’t metrics to track. The Tel Aviv Stock Exchange has been developing many indices in recent years, both in the area of stocks and bonds. Now there are no less than 45 indices that track the various sectors in Tel Aviv by industry or by value.
Despite the abundance of different and diverse indices, very few active instruments try to act in relation to these indices. Did the managers raise their hands in advance? In the field of passive instruments, on the other hand, there is a greater selection, whether in mutual funds or in ETFs, although there are still “orphan” indices without any instrument that tracks them. Even in sectors where there are active funds, it is usually one or two funds, so it is difficult to compare the capabilities of the various fund managers, except by attribution to the reference index. In cases where there are still active funds, the managers actually try to operate within the stocks included in the index but with different weights in such a way that they achieve an excess return beyond the blind index. They seem to be doing this with only partial success, or at least much less clearly than we saw last week. There are cases where they beat the benchmarks and others they don’t. It’s hard to find a fund that significantly beats the benchmarks consistently, except for one fund.
For convenience, we have divided the review into two different tables. We looked at the performance in 2022, in the last three and five years. For each fund, we searched for the ratio index according to the data on the Maya website of the Tel Aviv Stock Exchange or as indicated in the fund’s prospectus. We note that not in every case the fund competes exclusively against only one index, and sometimes the comparison is not accurate. In each box we marked in red if the fund underperformed the index and in green if it outperformed it. We got fairly colorful tables without a distinctly “winning color”.
The first table focuses on the energy indicators. We note that the stock exchange presents 3 different indices that focus on energy: the oil and gas exploration index, the oil and gas index (many stocks are included in both indices and it is not clear why both are needed) and the cleantech index. There are three funds operating in the field.
The table shows that in 2022, which was excellent for the traditional energy sector and bad for green energy, no fund was able to beat the benchmarks. The increase (or decrease) to do magic active energy that presented a return of only 6.66% compared to about 35% in the oil and gas exploration index which it is trying to beat. We note that the fund also takes other foreign indices as benchmarks, however, as of the end of October 2022, it does not hold any shares abroad, so it seems that it simply failed in its mission in 2022 and its choice was much less successful than simply following the index.
In the three-year timeframe, however, this fund performs much better than the index. The competing fund Meitav Gas and Oil was closer in 2022 but still below the benchmarks, in the last three years it performed less well than the competitor and only slightly above the exploration index and less than the general oil gas index. In a period of five years, the picture turns around, with Meitav showing better performance than the indices and also the competitor Beit Kesem. Both funds charge management fees in the high range that Kesem approaches 3% – far too much.
In the second table we referred to the banking and real estate indices. These two sectors were hit in the stock market quite a bit in 2022 when the reference indices fell, mainly in the real estate sector. In the second table, the color green dominates a little more, although not significantly. Some of the funds are relatively new and it is not possible to check their performance over a period of 3 or 5 years. The stock exchange in Tel Aviv presents many financial indicators. The active funds do not lift the glove and do not so much try to offer funds that focus on the field.
We examined the two funds that invest in Tel Aviv banks. We note that the flexibility of the fund managers here is particularly small, and most of the decisions are made on how to divide the investment between the 5 largest banks, which often move as one group with a high correlation between them, so that these are almost imitation funds. There are also Smaller banks with smaller weights in the funds. There were indeed only small differences between the two funds in the field and the ratio indices, with the exception of Ailes bank shares in 2022 which for some reason lost double the index. We note, however, that Ailes is slightly more diversified and invests about 3% of the fund’s assets in banks abroad to (as of the end of October last year).
The various real estate indices in Tel Aviv did not have an easy year. The losses reached over 30%. Most of the funds managed to show a slightly less bad performance, but all of them lost more than 20%. It was difficult not to lose at a double-digit rate in a year like this, and the fact that the fund managers succeeded to sweeten the bitter pill a little bit deserves appreciation Even in the three-year period the funds for the most part managed to present a slightly better performance, however in the five-year period most of them already lag behind the reference index by 3% to 9%.
But there is one exception for the better and one for the worse. The best is Mor real estate that manages to present a much better performance than the indices. In 2022 it was the one that lost the least of all the funds. In a three-year period it presented a profit of 11% compared to a similar rate of loss in the indices, again, significantly above the competitors. In a period of 5 years it is already exploding with a yield more than 2 times higher than the indices. It does all this for a reasonable management fee of 1.25%.
The one that stands out negatively is a real estate analyst who loses to the indices in all time ranges and shows the worst return of all the funds. For the pleasure of losing money with her, an analyst charges 1.85%. No wonder then that this is one of the smallest funds in the category even though it was established over 20 years ago.
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