More than NIS 100 billion of Israel’s pension funds are invested in index products. Who are the most dominant forces among the largest 25 Israeli institutional managers?
Israeli institutional investors hold assets of NIS 105.9 billion in local and foreign ETP’s, according to third quarter reports of local provident (including study funds), pension funds (old and new funds) and life insurances.
Our findings point out that index products holdings makes up approximately 8% of the total AUM of Israeli long term savings industry (NIS 1.32 trillion). Taking aside pension products that are heavily invested in Israeli government bonds with yield, the average share of index products in a typical institutional portfolio is almost double.
Migdal at the top
Naturally, the largest investment managers in Israel are also the largest users of index products. At the end of the third quarter, Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL) invested NIS 21 billion of its clients in ETF’s and ETN’s, while Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS) and Psagot Investment House Ltd. held NIS 17.9 billion and NIS 17.3 billion respectively in index products.
A major stake of the Israeli institutional holdings of index products is allocated to foreign equity, where ETP’s serve as a simple and convenient way for the local investment managers to achieve broad exposure to companies around the world.
The long-term savings industry in Israel is currently comprised of 19 institutions in which there are 25 active investment managers. These managers are accountable for the investments of about 100 investment companies operating in the local LTS industry, most of them specialize in provident funds and the rest in insurance and pension products.
Itsy-bitsy SPDR
At the end of the third quarter, Israeli institutional investors were invested in 46 product managers, including 10 domestic and 36 foreign. ETF’s had total assets of NIS 76.1 billion and local index products (tracking funds and ETN’s, excluding local CD’s) gathered NIS 29.8 billion.
SSgA’s ETF brand - SPDR - is the most held product provider among institutional investors in Israel with assets of NIS 21.8 billion. SPDR is accountable for the largest single ETF holdings by Israeli investors, SPDR S&P 500, with total assets of more than NIS 7 billion. Another significant holdings of SPDR’s products are its S&P 500 sectors: Financial Select SPDR (NIS 7 billion), Consumer Discretionary Select SPDR (NIS 1.5 billion) and Health Care Select SPDR (NIS 1.4 billion).
Second place belongs to iShares, operated by the global ETF giant BlackRock, with assets of NIS 17.8 billion. While on equity products it loses to SPDR, iShares wins the pot among Israeli institutional investors in the field of foreign fixed income indices. iShares ETF’s on the IBOXX USD Investment Grade Corporate Bond Index had total holdings of NIS 700 million.
The NIS 5-10 billion group contains all four Israeli ETN issuers. Among them, Psagot Sal leads with assets of NIS 9.1 billion. KSM, a subsidiary of Excellence Investment House had assets of NIS 7.9 billion and Tachlit (a subsidiary of Meitav Dash) NIS 7.3 billion.
S&P rules the indices arena
S&P Dow Jones is the most dominant index provider among institutional investors in Israel with assets of NIS 40 billion, while second place MSCI had only half of its holdings at the end of the third quarter. From a domestic perspective, The Tel Aviv Stock Exchange had assets of NIS 17.3 billion. The other 40 index providers used by Israeli institutional investors had assets of NIS 28.6 billion, led by STOXX, FTSE and NASDAQ OMX.
At the end of the third quarter, Israeli institutional investors held assets of NIS 17.3 billion in index products on domestic indices, of which equity indices had taken a stake of more than 70%. TA-100 (NIS 6.3 billion) and Tel-Bond 20 (NIS 1.3 billion) were the most dominant indices on the Israeli equity and fixed income markets.
Over the same period, local institutional investors held assets of NIS 88.5 billion in ETP’s on foreign indices, of which equity indices had assets of NIS 86.8 billion and fixed income had only NIS 1.7 billion. S&P 500 is the most dominant foreign index in Israel with assets of NIS 19.1 billion, followed by the German DAX, MSCI World and NASDAQ 100, which had assets of NIS 3.5 billion each. The US equity market takes up the bulk of index products made by Israeli institutional investors with total aggregate holdings of more than NIS 42 billion.
The bottom line of Israeli institutional reports shows that the trend of using index products as part of local investment portfolios continues, with the main motive of local investment managers in indices to increase their exposure to assets outside of Israel, which is a growing activity on their part in recent years.
Yaniv Kunis is founder and CEO at Index Research, an Israeli-based index provider specializes in research and development, calculation and maintenance of fixed income and equity indices.
Published by Globes [online], Israel business news - www.globes-online.com - on December 20, 2015
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