What Would You Do With NIS 100,000?

The Israeli capital market is deep in the doldrums; but it is precisely there that the perceptive investor can find matchless opportunities. Almost all experts agree that the rock-bottom prices on the share and bond markets are most attractive for the purposes of long term, and perhaps even short-term investment, and that "the security purchasers of today are the millionaires of tomorrow". The ongoing slump, however, has engendered a crisis of confidence, the banks' securities consultation system is paralysed, and accordingly, the gold presently rolling around on the floor of the Tel-Aviv Stock Exchange is believed not to have reached the notice of the general public.

"Globes" has decided to rise to the challenge and try to span the gap between what capital market experts think and believe, and what the general public needs and knows. This is to be done by means of a weekly investment advice column, in which different experts, from either brokerage firms or banks, will make their recommendation as to the optimal investment portfolio for the ordinary citizen.

This column does not purport either to be or to substitute for an official consultation service. Rather, in a situation where the general public is unable to obtain any educated opinion as to recommended investments, the "Globes" advisory column will provide some modest sign-posting as to the road the intelligent investor would do well to tread.

Rules

"I am a private citizen. I have a disposable sum of NIS 100,000 that I want to invest for the short term (3 months), the medium term (one year) or the long term (5 years). What would you advise me to invest in?" To answer this question that "Globes" rounded up expert opinions.

The experts approached by this forum have accordingly been asked to recommend an optimal investment portfolio for a private individual (not a firm) for the short, medium and long terms, the assumption being that investments for each term will be structured differently.

We have imposed no restrictions as to the types of investments preferred by our experts (including investments outside the capital market, such as savings schemes). We do, however, ask for detailed explanations: why is a particular portfolio structure recommended, on what macro-economic assessments was the recommendation based, and what specific securities should be preferred. We feel Israeli brokers today may take their cue from the American CNBC television network, and not hesitate to make a direct recommendation on shares. Happily, the brokers agreed with us.

Zeev Milbauer, investment manager at IBI, Israel's biggest private brokerage firm, is this week's expert.

Milbauer: At IBI we prefer relatively solid investment portfolios. The percentage of solid assets in an IBI investment portfolio will be not less than 70% in any time range. The longer the investment term, however, the bolder IBI will be about increasing the portfolio's risk elements. Thus, in the long term (5 years) the percentage of long-term bonds increases to 10% (as compared to 5% only in the medium term, and 0% in the short term), and the percentage investment in shares rises to 30% (as against 10% in shorter time spans).

Zeev Milbauer explains that since, in the long term, there is less extreme fluctuation, it is a good idea to invest in worth-while, albeit riskier assets. For the short term, he is more cagey, in view of the risk level of these assets, especially the long-term debentures. "Long-term debentures have recorded a significant increase in the past month. Together with the volatile political situation, this is not the time to invest in them for the short term".

In debentures, IBI's field of expertise, Milbauer recommends paying attention to the government bonds series with a lower rate of nominal interest in which net yield is, therefore, higher. He alludes also to the Brodet committee recommendations, which, if implemented, will make all bonds, but especially long- term debentures, more attractive to private investors.

Even in long-term investments, however, Milbauer recommends that the duration of the average bonds portfolio not exceed five years (with an identical percentage holding in short, medium and long-term bonds). "Every investment portfolio should have a stabilising anchor", says Milbauer. "A five-year bonds average supplies the stability and the low risk required for the portfolio, even if the investment is for the long term". Within this anchor, he also includes shekel investments, 20%-25% in any period of time, for investment in the longest term shekel instruments existing (Shachar for two years and Gilon for five years).

For anyone interested in the short term, Milbauer recommends dollar investment, in the form of the purchase of a dollar-linked Gilboa type debenture, redeemable after six months, but only for the short term. "If the dollar responds", says Milbauer, "there is a good chance that this will happen in the next half year. After that it is already difficult to predict, and the risk of real erosion of the dollar is too great".

And finally: Shares. IBI, as stated, is a very solid company, and accordingly, its recommendation as to the proportion of shares in a portfolio, even the maximum proportion in a five year range, is a very moderate 30%, and that in major, relatively solid shares.

In the short term, IBI recommends Tadiran shares (Tadiran Telecommunications is expected to post continuing growth, while the Communicatins and Systems group is expected to improve). Tadiran Telecommunications has an impressive backlog of orders, with anticipated growth in target markets, Agan Chemicals (Q3 results expected to be higher than for the corresponding quarter last year), Africa Israel (the tender for the sale of Bank Leumi's holdings in the company will help increase the value of the share) and Electra (orders backlog of more than NIS 700 million, big volumes of activity, sectarian decentralisation).

In the medium range, IBI recommends Agis (improved results by virtue of the maturation of processes in Chemagis and Clay Park), Clal Insurance (traded at a low price relative to its expected results), ICL (if a devaluation takes place, its results can be expected to improve), Agan (increased activity by virtue of the acquisition of foreign companies and anticipated improvement in profitability, by virtue of the merger with Makhteshim), Koor (positive effect of devaluation, due to export-oriented companies), and Bank Hapoalim (good market position, prospects of privatisation).

In the long term, IBI recommends Property & Building, since it is strong in a sector that is expected to present a considerable improvement in its economic parameters (p/e ratio and capital multiple). The same applies also to the other recommended long- term shares: IDB development, Agis, Electra, Koor and ICL.

Any person purchasing or selling securities in light of the foregoing, does so on his/her sole responsibility.