"Globes" continues with its weekly feature outlining the investment portfolio recommended by various investment managers operating in the capital market. This weekly recommendation, we would remind our readers, is intended for private investors, rather than companies or organisations, seeking an investment for the short term (a few months), the medium term (about a year) or the long term (upward of three years).
Our experts, all of them seasoned capital market investment managers, have been asked to construct a recommended investment portfolio for each of those three terms, giving detailed reasons. We have imposed no restrictions, recommendations need not even be limited to the capital market, and experts are entirely free to structure the portfolios as they deem best.
"What would you do with NIS 100,000?" is this column's leading question. Recommendations, however, are obviously valid for any investment amount, from NIS 10,000 to NIS 1,000,000. Today's recommendations come from Eyal Securities, one of the most long-standing of private TASE members in the market.
Eyal's recommendation
|
| Short (up to six months) Investment Term |
|
Solid Investor |
Ordinary Investor |
Aggressive
Investor |
|---|
Index
Instrument |
20% |
20% |
- |
Foreign
Currency
Instrument |
20% |
20% |
10% |
Shekel
Instrument |
50% |
30% |
40% |
Share
Instrument |
10% |
30% |
50% |
| Long (3-year) Invesment Term |
|---|
Index
Instrument |
30% |
25% |
15% |
Foreign
Currency
Instrument |
30% |
25% |
15% |
Shekel
Instrument |
25% |
15% |
- |
Share
Instrument |
15% |
35% |
70% |
"A generally calm political situation compared to one year ago, and a sense of social solidarity concerning focal political objectives, create fertile soil for a positive share market trend". This is the opinion of analyst Yael Mishli of Eyal Securities, attesting to the close connection between politics and stock exchange as also to the change in the attitude of the Tel-Aviv Stock Exchange toward Prime Minister Benjamin Netanyahu. Former suspicions that Netanyahu might undermine the peace process gave way to sympathy once it became apparent that he is pursuing the process, with greater ease, in fact, than the Labour government, thanks to his more widespread social support.
Mishli sees the Bar-On - Hebron affair and the construction on Har Homa as political clouds liable to cast a short-term pall over the TASE, but feels they "will not alter the positive long-term trend".
The improvement in the political peace process is just one of the positive elements on which Eyal Securities bases its predictions. The company also anticipates continued exposure of Israeli firms breaking onto the world scene, especially in technological fields, with new money continuing to be injected into the market by both Israelis and foreign investors. Eyal notes that the economic slow-down will cause the 1996 annual reports of public companies to show eroded profits. Yet the situation, they feel, will not deteriorate into an actual recession, and "at a time when economic activity is slowing, demand for money should decrease while demand for financial assets should increase".
Eyal further assumes a 10% inflation rate in 1997, with the dollar retaining its real value (a 9% rise in the dollar exchange rate over the year), a continuing moderate reduction of the interest rate and a deviation from the planned budget deficit, since tax collection will be less than forecast because of the slowdown.
Eyal’s investment recommendations, based on the foregoing, target terms of either six months or three years, and three types of investors. The shorter the investment term, the more solid the recommendation.
Shekel instruments
Eyal recommends focusing on Shachar-type shekel debentures, (which bear a fixed rate of interest), especially in those Shachar series that have a long redemption term. The is because the company expects the interest rate to continue being lowered, ensuring capital gains for Shachar-holders. Moreover, the debenture assures an inflation-adjusted yield (based on Eyal’s inflation expectations), of 4% to 5%.
Linked Instruments
Surprise - Eyal is the first expert hosted by this column that does not recommend investing in index-linked government bonds (usually the basic component of all investment portfolios). Instead, it recommends index-linked convertible debentures of private companies, traded at a net yield of 5% to 7%. These debentures offer protection against inflation rate changes, an option for conversion into shares (although irrelevant at present, this could become relevant in case of a strong boom on the share market), and assure a higher yield than do governmental index-linked types. Specifically, Eyal recommends convertible debentures of Shore Zone Construction & Properties, Mediterranean Sea Hotels, Malibu and Maariv.
Foreign Currency Instrument
Since it expects the dollar to rise this year at least to match the inflation rate, Eyal recommends sticking to the dollar by means of dollar-linked (government) debentures of the Gilboa type. These debentures, especially in the long-term, 6-year series, assure a net yield of 4%, and may generate capital gains if the shekel is devalued. Another possibility is that of investing in dollar-linked debentures of private companies (concern debentures). Eyal’s specific recommendations are Electro-Chemicals 3, Al-Rov and Maman.
Shares
This is, without a doubt, Eyal’s most preferred instrument. Despite the sharp (23%) rise recorded in shares since the beginning of 1997, Eyal believes this instrument will be positive later in the year, and will produce better yields than any other instrument. Primarily, they are optimistic as to the expected price correction in the smaller, Karam shares. Accordingly, they recommend a share portfolio spread of 60% smaller shares (Karam and lightweight Mishtanim shares), and 40% heavy Maof shares. For anyone still really fearful of investing in shares, Eyal recommend low-yield, low-premium convertible debentures. These can actually be seen as a lower-risk substitute for shares. Especially recommended are the debentures of Rapac, Koor F debenture and Liraz.
Recommended shares
- Elron, Tadiran, Imco, Melta, IES, Telsys and Nisco:
The electronics industry gets Eyal’s top recommendation, as being "the steam engine that will pull the economy in the next few years". The fact that this is an export sector, in a year in which the dollar is expected to retain its real value while the economy progresses at a lower speed, makes it especially attractive. Specifically, in this sector Eyal recommends Elron (a hothouse for start-up companies, free of the attendant risk), Tadiran (whose results are steadily improving thanks to streamlining), Imco (which develops electronics and mechanical products for military use), Melta (which manufactures electricity panels), IES (due to the activity of the subsidiary in the fields of fast modems), Telsys and Nisco (which trade in electronics components that are expected to benefit from sector growth).
- Africa Hotels, Issta, Natour, Caprice:
in view of the improvement in the political situation, Eyal is optimistic about the Israeli tourist industry. Specifically, they recommend Africa Hotels, Issta, Natour and Caprice (sale of jewellery to incoming tourism) that have managed to preserve profitability even in times of crisis that have overtaken the industry.
- Agan-Makhteshim and also Frutarom and Kedem:
the chemicals industry, in Eyal’s estimation, will continue to produce a high yield, due to both real industrial growth and foreign-investor interest in its shares. Particularly outstanding are the two companies Agan-Makhteshim, the duo that features regularly in almost all this column’s recommendations, inter alia by virtue of the Koor concern’s plans to consolidate the two in 1997. Also recommended are Frutarom, which manufactures aromatic substances and is presenting improved results since being separated from Electro-Chemical Industries, and Kedem, which manufactures chemicals for industrial and domestic use and is negotiating co-operation with the mammoth Unilever concern.
- Formula and Liraz:
the computer industry too is recommended by Eyal, especially the shares of Formula and Liraz, two dynamic companies that operate through a number of firms in the industry.
Previous Recommendations:
The above recommendations were made by a person/s working in the investment industry, who may hold positions in securities mentioned in the column. This column should not be taken as advice to buy, sell or continue to hold any securities, and anyone acting on the advice of this column does so at his or her own risk