Will mutual funds have to reduce holdings in banks – mutual funds

ISA, Headed by Chairman Anat Guetta, informed mutual fund managers that they should act to adjust the composition of the Banking Index in a way that would allow them to meet the minimum dispersal conditions according to law. April 2021. Fund managers have a limit of a maximum investment of 25% in a single share.Investing in the banks index, due to its concentration, may result in indirect investment through the index in a single share beyond the limit.The directive mainly endangers the holdings of funds in Poalim and Bank Leumi.

Tel Aviv Banks Index -5
+ 0.08%

Base:2,180.64

opening:2,183.23

Tall:2,210.12

low:2,160.26

change:157,108,007

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Of the Tel Aviv Stock Exchange is an index that includes the shares of the five largest banks in Israel. This is an exceptionally centralized index – beyond the low number of securities included in it, the weight of the two largest banks in Israel,

Working
-1.06%

Base:2,351

opening:2,353

Tall:2,377

low:2,288

change:35,864,787

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And a bank

national
-1.14%

Base:2,023

opening:2,025

Tall:2,056

low:1,972

change:51,468,873

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, Is about 65% of it. This is a high and unusual rate both in relation to what is accepted in the world and in relation to the rules that the stock exchange applies in relation to the indices it conducts, when investment indices that are monitored by passive investment products are required for a larger number of securities at a higher dispersion level.

In general, the law applicable to mutual funds and open-ended funds prohibits exposure of more than 25% of the fund’s funds to a particular security, and requires a minimal diversification of the investment in a number of securities. As part of the reform in the ETF industry that came into effect about two years ago, and out of a desire to allow the continued operation of investment products in the industry, the Authority issued a temporary directive allowing ETFs, which have replaced ETFs, to follow the banks’ index. This temporary provision will expire at the beginning of April 2021. At present, funds that monitor the banks’ index with a total value of approximately NIS 7 billion are managed.

On the one hand, beyond the limitation arising from the provisions of the law, such an exceptional concentration of an index is not desirable, on the other hand, it is a unique index for the banking sector, which is a centralized and established sector, which centers a considerable amount of public investment. Therefore, the Authority seeks not to prevent investment in it or to cause radical changes in it, but to bring about a balanced solution. Therefore, the Authority believes that changes can be made in the composition of the index that will allow the mutual funds to invest in it, while maintaining its position as representing the banking sector and while mitigating the risk resulting from the current concentration in it.

In light of this, the Authority informed the fund managers that in light of the expected expiration of the interim directive, they will have to ensure that the composition of the Tel Aviv Banks-5 Index and any other index monitored by a fund under their management, which overlaps in the composition of this index, They will be subject to minimum dispersal conditions, which include a weight limit of 22.5% per security, and in any case no more than 25% between the update dates of the index weights, and that the weight of the five major stocks in the index will not exceed 85% of the index composition. The index that will replace the banks’ index balances two values ​​that should exist in the index – adequate distribution and representation of the activity to which it refers.