With 2023 fast approaching "Globes" asked senior investment managers to suggest what to do with a NIS 1 million and whether a much smaller amount like NIS 100,000 should be invested the same way.
IBI Mutual Funds
To focus exposure overseas on the US market
"The complexity of investing in the bond market is in the difficulty in finding a convenient area between the inflation scenario and the recessionary scenario," explains IBI Mutual Funds chair Elah Alkalay.
"If you believe that inflation will remain rampant and even increase, this means that the value of money and returns will erode. A rise in inflation will most likely lead to further interest rate hikes, which will lead additional increases in yields and create equity losses along with growing fears of future bankruptcies," Alkalay says.
She continues, "In the scenario that we are already on the way to a recession and that the interest rate hikes already made will slowly tame 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 relatively low risk will close."
In terms of geographical exposure, IBI recommends, "To concentrate the main exposure oversea in the US market. For stocks in Israel, we recommend focusing on the biggest companies included in the Tel Aviv 125 Index."
"Looking at the different industries, there are several sectors that we believe 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 regulatory restrictions. The return on capital is attractive and expected to be around 12%-15%."
In addition, Alkalay recommends renewable energy as an interesting sector both in Israel and abroad. "Investors in the field should distinguish between R&D companies, which are huge opportunities but the investment risk is high, development companies and companies whose core activity is selling electricity."
She adds, "The declines in the markets have created quite a few opportunities, some of them are perhaps high risk, but in our estimation the strong companies will grow from their origins, and they are also prepared for opportunities to purchase possibilities to strengthen future growth rates."
The recommended portfolio structure suggest by Alkalay is to invest 25% in government bonds, 50% in corporate bonds, 5% in deposits, 10% in Israeli stocks and 10% in overseas stocks.
For those with NIS 100,000 to invest rather than NIS 1 million, Alkalay insists that the same principles apply but preferably through investments in mutual funds and index-based funds.
Altshuler Shaham
45% of the portfolio in stocks, the remainder in bonds and cash
Altshuler Shaham head of global equity Guy Lilienthal estimates that, "Market volatility will continue in 2023. Building a portfolio should take into account both the recent declines in the stock market, which has created interesting opportunities, and the declines in the bond market, in order to achieve a positive return, 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."
Altshuler Shaham proposes a portfolio comprising 45% shares, mainly on the US market. Lilienthal explains that this market, "Knows how to respond to crises the best and fastest. In our opinion, it will come out of the crisis stronger than other economies." The stock component is divided into 16% in the S&P 500 index, another 12% in the tech-biased Nasdaq, 5% in European stocks - mainly food companies, 1% in COPX copper mines index, and 11% in shares in Israel.
The remaining 55% of the Altshuler Shaham portfolio is comprised of bonds and cash, with 25% (of the total portfolio) in index-linked five year bonds, half government bonds and half high-rated corporate bonds, 10% in overseas bonds (bond ETFs with a speculative rating like HYG, or bond ETFs with a sustainable rating like LQD), and 20% in Israeli government shekel bonds with a 1-year maturity, and cash.
Lilienthal also says that the same principles apply to investing NIS 100,000 rather than NIS 1 million, using mutual funds and index-tracking funds. "It is important to note that we are in a volatile period in the markets, which is also an opportunity for a patient investor."
Meitav Dash Portfolio Management
In bonds prefer the unlinked section
Meitav Dash Portfolio Management chief investment officer Aviram Naeh recommends, "Build with an investment in mind for a period of several years. It is important to note that the investment needs is one of the most important pieces of information when we come to build an investment portfolio for a client" According to his proposal, the bond component should constitute 70% of the portfolio, and consists of 30% (total portfolio) in Israeli government linked bonds with a 4-year maturity, 15% Israeli government shekel bonds with a 4-year maturity and 25% shekel corporate bonds with up to 3-years maturity.
"Give priority to non-linked over linked, estimating that central banks, in Israel and worldwide, are determined in their battle to eradicate inflation, so that in several years there may be a recession and a sharp drop in the inflation rate."
Stocks will make up 30% of the portfolio. "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 hike 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 remaining 5% will be invested on Nasdaq, where listed companies, Naeh says, will use the coming period to streamline.
Naeh says the same principles apply for investing NIS 1 million or NIS 100,000.
Psagot Securities
Equal distribution between stocks in Israel and abroad
Psagot Securities VP investment Roi Moshe says, ""The acute monetary restraint we experienced in 2022 manifested itself in sharp interest rate hikes that led to a sharp increase in yields (capital losses) in the government and corporate bond options.
"This situation has led to the fact that today there is 'meat' in bond options, which means that these options are 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 overall exposure is in the US; 25% in exposure to index-linked corporate bonds; 25% to shekel-denominated corporate bonds; and 5% to linked government bonds with a short maturity. Another 15% of the portfolio includes exposure to medium to long-term maturity shekel government bonds.
Like the other investment advisors, Moshe agrees NIS 100,000 can be invested the same as NIS 1 million but rather through mutual and sector funds.
Peilim Portfolio Management
Focus on leading indices with an emphasis on financial stocks
Peilim Portfolio Management commercial customer desk manager Ziv Kirschenbaum expects a slowdown in 2023. "It can be seen that inflationary factors, such as shipping prices, oil prices and other commodity prices that have affected us in recent years (as a result of the Covid crisis and the Russia-Ukraine war) are on a downward trend. If the trend continues, price falls will come and so the rate hikes will stop." Peilim recommends investing 30% of the portfolio in stocks, 17% in Israel (55% of the stock component of the portfolio). Peilim proposes focusing on the leading indices, "While stressing financial stocks that show good results." "Other sectors that can give preferred returns are in the defense industries, communication companies and companies in the infrastructure sector."
In US stocks, which make up 14% of the portfolio (45% of the stock component), Peilim recommends focusing on the tech sector, while stressing software, semiconductors and cybersecurity. Kirschenbaum adds, "Other industries recommended to pay attention to are banking and healthcare, including medical equipment" .
The rest of the portfolio (70%) will be in bonds. "We estimate that the interest rate of the central banks will reach 3.75% in Israel and 5% in the US at the end of the series of interest rate hikes," adds Kirschenbaum.
Peilim recommends bonds with a maturity of up to 4.5 years, of which 39% of the portfolio should be in shekels (55% of the bond component) and the balance - 32% of the portfolio - in linked bonds. "In this type of portfolio, it is possible to generate an internal yield of about 5% and 'lock' it for the long term." Peilim says.
Infinity Asset Management
Focusing on sectors benefiting from the macroeconomic picture
Infinity Investment Group CEO Lior Vax is cautiously optimistic. "The rate hikes that we have seen over the past year are beginning to show their impact and we will soon see inflation rates beginning to moderate."
He adds, "Israel is on its way to forming a new government and after five elections the business sector now see government stability. Government stability will contribute to the continued growth of the business sector in Israel on many issues, such as transport, infrastructures, real estate, and budgets for other projects.
"Therefore we see that companies operating in core sectors can benefit from major development budgets in the near future."
He says that an investment portfolio built today for a period of at least five years should include a significant component of stocks, while managing risks through geographical and sectoral diversity, with a bias towards the Israeli market and a focus on sectors that will benefit from its macroeconomic picture, including infrastructure, banks and insurance."
According to Wax, "The solid part of the portfolio will include an investment in bonds with a 4-5 year maturity, 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."
Published by Globes, Israel business news - en.globes.co.il - on November 30, 2022.
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