Although its progress in the mutual fund field has attracted virtually no attention, Bank Hapoalim has attained a major achievement in the category over the past year, becoming the market leader. Bank Hapoalim's market share exceeds that of Bank Leumi, its competitor, which has been relegated to second place, by a wide margin.
Bank Leumi held a safe lead in the mutual funds field for many years. The turnaround came in 2000; Bank Hapoalim's market share passed that of Bank Leumi for the first time. Taking the lead, however, was only the beginning. Since that time, with determination and consistency, Bank Hapoalim has increased its market share every month, while Bank Leumi's market share has shrunk.
Figures obtained by "Globes" show that the gap, which stood at only 2.6% at the end of 2000, reached 10% by the end of October 2001. With a 39.3% share, Bank Hapoalim is taking giant strides towards 40%, while Bank Leumi is stuck at 29.3%, just under the 30% mark.
Bank Hapoalim currently manages mutual funds through three subsidiaries: Poalim Mutual Funds (PKN), Lahak-Mutual Funds Management, and Continental Mutual Funds. All three are managed by Dror Nagel. The impressive rise in Bank Hapoalim's mutual fund market share is part of a general expansion of mutual funds. Bank Hapoalim alone currently manages NIS 20 billion in assets. At the end of 1997, the entire mutual fund market amounted to NIS 20 billion, while this market now totals NIS 53 billion.
The expansion of the mutual fund market is mostly due to capital raising by the shekel funds, combined with a sharp drop in the market share of the share funds. This trend has now made mutual funds an alternative to the share funds, mostly in the deposit market.
The growth in Bank Hapoalim's market share has mostly come at the expense of Bank Leumi, but also at the expense of private brokers, Israel Discount Bank, and United Mizrahi Bank.
The figures prove that Bank Hapoalim's mutual funds also lead in performance. For example, the list of funds with the highest returns in January-October, which was published by Kranot Meda Zahav, Israel's leading independent mutual fund rating company, rank five Bank Hapoalim funds in the top ten. Lahak Long-Term Zmudim is in first place, PKN Yaara is second, Lahak Foreign Currency Aggressive is fifth, PKN Mekorit is seventh, and PKN Almog is eighth.
In contrast, no Bank Leumi funds cracked the top ten. Bank Leumi's best performing fund is PIA Index-Linked Bonds, which was rated eleventh. Of the funds with the 30 best performance records, ten are Bank Hapoalim funds and only five are Bank Leumi funds.
What has caused Bank Hapoalim's market share to rise at the expense of Bank Leumi? The answer depends on whom you ask. Bank Hapoalim cites the number and quality of its advisors, and praises its advanced computer consultant systems. Bank Hapoalim says that quality management was also a factor. Jacob Rosen, a former successful manager of Bank Hapoalim's mutual funds, was promoted to the bank's senior management, assuming a senior overseas post.
Bank Hapoalim’s deputy CEO in charge of the customer assets division, Dafna Pelli, told "Globes" that the bank's investment strategy focused on counseling: "Bank Hapoalim invested more than the other banks in developing decision-making support tools for investment counseling, training the most authorized counselors in Israel, and developing products tailored to the customers' needs.”
”The growth in Bank Hapoalim's share in most investment fields - funds, foreign currency, and shekel deposits is a result of preparation at the counseling level and management of our customers' assets," Pelli said.
Bank Leumi explains the results by citing its wish to benefit its customers. Bank Leumi First Executive Vice President, Head of Private Banking and Investment Services Division Dov Gilboa says that the bank's overriding consideration is the customer's welfare, which is not always served by investing in mutual funds.
"There’s a variety of products in the investment market, of which mutual funds are only one," Gilboa points out. "In certain cases, even in the shekel market, other alternatives, such as deposits, are more worthwhile for the customer, so we offer them to the customer. We adapt our products to the customers, reducing our share of the funds market, but this isn’t the case with total investments."
Gilboa also point out that mutual funds have always been more involved in shares, while increases in shekel assets have accounted for most of the recent growth in the funds' assets.
According to Gilboa, Bank Leumi takes the problem of the funds and the gap opened up between it and Bank Hapoalim very seriously. "We certainly regard preservation of our share in the system as a goal, but we won't sacrifice the customer's welfare to achieve it."
In the short term, there is practically no difference between deposit investments and fund investments for the bank, as long as it retains the customers’ accounts. Sometimes deposit investments are more worthwhile for the bank, mostly for reasons connected to liquidity matters.
In the longer term, however, a customer who has already invested in a mutual fund has a shorter road to travel before investing in a share fund, once the capital market revives. For the banks, this consideration tilts the scales away from deposits, in the direction of the funds.
Banking sources claim that Bank Leumi is paying a great deal of attention to the loss of its leading position in the mutual fund market. Will the bank decide to step on the gas in order to close the gap with Bank Hapoalim, as it did in the credit card field, for example? Even if this happens, senior banking sources say such efforts will require a great deal of money and time, which will be needed to train more counselors and develop computer systems.
Published by Israel's Business Arena on November 7, 2001
Dafna Zucker