Why did Tel Aviv exhaust the increases? The investment manager’s explanation

Ron Rosenstein always dreamed of being a journalist, but during the combined economics and communication degree he realized that it was economics that made him feel comfortable. “I was interested in macro processes, in the psychology of investments, I learned about the market, I didn’t want to stay in theory, but to see how it turns into practice and I realized that this is my field.” After a short period in Harel, he arrived at the end of 2005 at the Altshuler Shaham investment house, where he still works today. At the age of 44, he manages institutional portfolio investments at Altshuler Shechem, which include holdings of government companies, organizations and other corporations.

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Unlike many other investment managers in Israel, he estimates that the local market has less potential. “I am loyal to the concept of the house,” he says. Altshuler Shaham is known for his overseas holdings-biased investment policy, but he also has a more specific explanation: “There was a rush in stocks in the local market in the last two months following the increase in estimates for a ceasefire, which did come in the north. If there is a return of foreign investors, there will probably be some more increases, but It’s hard to point to a significant potential. The banks, which we strongly believe in, have jumped in the last month and are already much cheaper.”

Great potential in the local debt market

He identifies the great potential in the local market precisely in the bond market. There, in his opinion, “it is possible to achieve a good return with reduced risk. The 10-year government bonds increased by 3% in the last month against the background of the ceasefire and the approval of the budget, but there is still a chance for capital gains.

“The decrease in Israel’s risk premium is reflected in the 5-year CDS contracts (the contracts that price the risk that the State of Israel will become insolvent. N.A.). The premium reached a peak of 160 points last October, after the Iranian missile attack, and has now dropped to a level of 110 points, which is very significant. Part of the decrease is due to the decrease in risk, which is also reflected in the large appreciation of the shekel against the dollar (the shekel strengthened by about 2.7% in November, 2011), but it should be remembered that even during the legal reform the contracts traded at levels of 50-60 points, so there is still a lot of ‘meat’ ‘ to the decrease in Israel’s risk premium and therefore also more potential for capital gains in the long-term government bonds.

“We are seeing a return of foreign investors, and also that the bond issues of the Ministry of Finance are receiving high coverage ratios (the demand is higher than the supply of the Treasury’s borrowings. N.A.), which indicates optimism in the bond market.” In addition, according to him, the concerns about raising interest rates Bank of Israel in Israel, contrary to the global trend, have faded away. “The market is starting to price a cycle of interest rate cuts. But even if the interest rate does not go down, the chance that it will go up and cause capital losses is much lower, and a return of 4.5% is a very nice return, even in absolute terms. Of course everything can change. That’s why the military service should be extended, albeit with caution.”

Even after more than two years of rallying, Rosenstein remains a big believer in the Wall Street stock market. Therefore, he allocates the bulk of the stock component of the portfolio to the American market. For a solid investor, Rosenstein recommends holding 25% in stocks (of which, 7.5% in Israel and 17.5% abroad, mainly the USA), 50% in Israeli government bonds, with a 4-year maturity, with half in Afik Shekels and a half indexed. He allocates the remaining 25% of the portfolio to corporate bonds in Israel, most of which are index-linked. He gives up on bonds abroad because, “You expose yourself to the dollar and there are also hedging costs and you don’t see a significant upside there, so it’s better Remain in local bonds only.”

For an aggressive investor, Rosenstein recommends exposure of 55% to stocks (15% in Israel and 40% abroad). Another 15% in government bonds in Israel and 30% in corporate bonds in Israel (most of them, as mentioned, index-linked).

“Neither a soft nor a hard landing – no recession”

After an increase of more than 50% in two years in the S&P 500 is there still room for gains? “We are optimistic about the American economy. There was some concern on the eve of Trump’s election, that his policy of tariffs and tax cuts would be inflationary, but the smoke has dissipated and we see that it is not the case. We are already beginning to see that it will be difficult for him to implement, certainly in the short term, the tariffs. He also elected a minister of finance Conservative, who seems to be fiscally responsible, and it also seems that the name of the game is efficiency, and you can see it in the conduct of Elon Musk and others The bureaucracy and regulation”.

And what about the Fed interest rate? It has already dropped twice to the level of 4.75%, and in about two weeks the American central bank will make another decision. Rosenstein estimates that the interest rate will not decrease in the upcoming decision, but adds that a technical change may improve the inflation data and prevent optimism in the market. “At the beginning of next year, the annual inflation rate is expected to decrease. This will allow the Fed to accelerate interest rate cuts, which will support the markets. In addition, the US macro data is strong and shows that we are no longer in a soft nor a hard landing. There is no recession.

“I don’t want to say that the American market is cheap, certainly not after its run, but we are not afraid of a significant diversion of funds to this market because the data is good. And of course – the December rally is also expected to help make it a strong month.”

Believes in “Zoom” and the electrification sector

Rosenstein chooses to mark two interesting investments in his opinion. One is the video call share Zoom . “It decided to turn from a company of online video calls into a provider of organizational solutions and an organizational environment and relies heavily on AI products, which will occupy a more significant share of its activity. It trades at a future multiple of 15 which is cheap in the sector and has a nice cash fund of 7.7 billion dollars with no debt.”

A sector that he believes may succeed in a big way is the electrification sector: “Everything related to infrastructure and electricity transmission. The demand is very high, also because of crypto, data centers, electric vehicles, climate events and the problems in the supply chain and the desire of countries to produce at home. There are companies that are ‘second derivative’ in the field And cheaper than the companies that sell equipment and you can be exposed to them through the Sel GRID fund.” This basket fund has increased by about 20% since the beginning of the year.

The licensee has a personal interest in the matter. The above is not meant to be a substitute for investment marketing that takes into account the needs and personal data of each person.