Stock markets around the world and in Israel in particular last month continued to show instability. For those seeking to avoid this volatility one of the main recommendations is to increase exposure to non-tradeable investments such as those that are not traded directly on stock markets. According to a survey by Israeli startup Valoo, which was conducted among hundreds of accredited investors, with higher than average capital, they have already put this recommendation into practice.
According to the survey, 65% of the respondents plan to increase their alternative investments in 2023, and have already begun diverting the required capital, while an additional 7% said that they were considering doing this but have not yet begun. This is the strengthening of a trend that began in 2022 when 32% of those surveyed said that they had increased the alternative exposure in their portfolios.
Despite this, it seems that these accredited investors are changing the character of their investment in the alternative field and most of them are significantly reducing their exposure to real estate, to the extent that in the first quarter of 2023, there was a change in the trend compared with previous years.
While in 2022, about 70% of liquid capital that was invested directly by major investors was used for real estate investments, both directly and through funds in Israel and around the world (with a focus on the US), since the start of 2023, a fall in this trend has been seen and even demand for selling real estate investments and making them liquid, while the respondent expresses a desire to reduce their real estate investments by about 60%. 68% of respondents decided to actively reduce real estate exposure, while the remainder chose to wait or were not able to reduce the investments as of the date of the survey.
When asked why they do not believe that real estate investment will yield income as in previous years, 90% responded that the reason for this was the rise in interest rates, the typical cost of leveraging for real estate and the expected slowdown in the market over the coming three years.
According to Valoo cofounder Adi Weitzhandler who founded the company together with Meir Steigman, and serves as co-CEO, alternative investments currently existing include privately-held companies, in which investments, either directly or indirectly allow access to the private market (funds) as well as a basket of corporate investments (shares of global companies with a sectoral spread), and sectoral investment funds depending on the financing round stage, and more.
"Those involved in investments in a professional way cannot allow themselves to stagnate," explains Weitzhandler. "The current climate in the global economy and in the Israeli economy in particular, is fertile ground for alternative investments to flourish."
During this period those investors prefer that their savings be invested in the non-tradable market. Due to media reports, including in "Globes" recently that in the first two months of the year the rate of withdrawing funds from advanced study funds doubled, and due to stock market declines, 52% of investors would like advanced study funds and their pension funds to increase exposure to non-marketable assets, and in particular to venture capital funds, with the aim of reducing dependence on the markets.
"Globes" found that most pension funds are already deeply into this trend. While in March 2022, the average exposure of companies managing new funds of non-tradeable assets stood at 44.2%, by February 2023 the proportion had risen to 47%. Altshuler Shaham's pension fund was especially prominent with its proportion of investment jumping from 34.6% one year ago to almost 45% in February.
On the tradeable market - a preference for Wall Street indices
If despite all this accredited Israeli investors are investing in stock markets, they prefer to invest in indices. When asked what preferred stocks to buy, most investors responded that the tendency is to buy indices, mainly on Wall Street's S&P and Nasdaq, rather than individual stocks, however popular they may be. 61% of respondents expect a return of 10%-20% on these indices in 2023, while 28% expect returns lower than 10%, and 11% expected returns of above 20%.
Regarding Nasdaq, the survey found that there is a cautious return to the tech-dominated index. Roughly one third of investors already began returning funds to the US stock market market at the start of the year, and expect a continued moderate recovery during 2023 in all bonds sectors. 42% responded that they prefer to wait and see how the Nasdaq performs in the coming month, and only then make a decision whether to return and invest.
"The vanguard force," that investors follow
Valoo is an investment platform that mediates between accredited investors (many of them are well-known angels in Israel's tech industry) and privately-held global tech companies and those holding shares in them and looking to sell. The company has a community of more than 1,000 major Israeli investors and among the companies that can be invested in via Valoo's platform are Verbit, Via, eToro, and in the past also Payoneer before it held its IPO. In order to be included on the company's platform, a company must present revenue of more than $100 million, so that only stable companies are involved.
Weitzhandler explains, "We are naturally talking about smart investors who see trends and value in every market in which they invest and usually are the first to implement changes. We often see that the accredited investors represent the 'vanguard force' that is followed by other investors. In this context, the trends arising from the survey and the deep-reaching discussions with the investors polled are less 'wisdom of the masses' and more 'wisdom of the professionals.'"
Because the survey was conducted among hundreds of Israeli investors who have jointly held capital of about $1 billion, it is interesting to see what they think about the domestic economy and the local currency. The results are unequivocal: exiting the Israeli stock market with no prospect of returning to it. 92% reported that out of the investment portfolio managed by them there are no direct investments in shares traded on the Tel Aviv Stock Exchange (TASE), compared with only 8% who hold shares here. Most of them said that their investments in the Israeli stock market are made only by their financial managers, such as financial planners using their pension funds and long-term savings.
Not surprisingly, the recent weakness of the shekel, which has mainly been attributed to the government's planned judicial overhaul, which led to public protests and reactions from the international rating agencies, has left its mark. Thus 78% of investors prefer to make their next investments in dollar linked assets and only 22% will make their investments in shekels.
"Many of the accredited investors in Valoo's community of investors are converting their shekel investments to dollars, and generally are less willing to invest in the Israeli market," says Weitzhandler.
"Even in the past there was no excessive enthusiasm for the Israeli stock market but in recent months, and in the shadow of the warning signs that continue to depress the Israeli economy - quite a few investors are looking for diversification into other investments, and no longer put much importance into investing in the 'close to home' option."
Published by Globes, Israel business news - en.globes.co.il - on May 2, 2023.
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