The Tel Aviv-35 Index, the Israeli blue-chip stock index, shows a marked lack of performance over the past five years in relation to the Tel Aviv-90 index, which includes the second-tier stocks on the Tel Aviv Stock Exchange. While the TA-90 index has risen by no less than 127% in the last five years, the TA-35 index has remained unchanged.
This is an inconceivable performance gap of 127% between the pair of flagship indices of the Tel Aviv Stock Exchange during this period.
The Tel Aviv Stock Exchange reform launched in 2017, which increased the distribution of the number of shares in the index from 25 to 35 shares, was an important reform that benefited with this index and created hopes for a sharp positive change in the relative performance of the index. However, even this reform failed to bring the TA-35 index to produce competition worthy of the TA-90 index in the yield table.
The business problems of a number of prominent companies in the index, such as local pharma stocks, have minimized the qualitative methodological effects, and now it remains to be seen whether the decrease in the weight of these stocks in the index, along with their corona position and business processes. Its potential.
Limiting the share of unrelated Israeli stocks in the indices in 2016 also contributed to the potential for the Israeli economy to be representative of this index, but sectoral circumstances prevented this important change from being reflected in the performance line of the Tel Aviv-35 index.
The common perception that first-line stocks of large companies in the economy are more stable and therefore more protected in times of economic slowdown and recession was not reflected in the corona crisis, which had unique characteristics that hurt the soft belly of the TA-35 index and deepened the index’s shortcomings. In relation to the performance of the Tel Aviv-90 index.
The five largest bank shares Whose weight in the index stands at about 25.7% suffered severe damage as a result of the corona crisis, in light of the understandable fear of a sharp increase in provisions for bad debts, which will erode the banks’ equity. The Bank of Israel’s signal to the banks to stop the distribution of dividends adopted by them also severely damaged the attractiveness of investing in these shares and caused them to trade far from the peak they reached on the eve of the crisis. Now it remains to wait for the impact of the vaccine for Corona on a return to routine for the economy and the banking sector.
Another key anchor in the TA-35 index is Income-producing real estate stocks, Which includes 6 shares in this industry and their weight in the index stands at about 14%. These companies, which hold a portfolio of offices and commercial properties and have been investor-friendly in recent years, have become a punching bag for many analysts and investors during the Corona crisis. In all that is said in the office market, investors are afraid of the flourishing of remote work at the expense of office work and the closure of businesses as a result of the corona crisis, which in turn will lead to a drop in demand for office space and falling rents. Concerns about the future of shopping centers in general and malls in particular accompanied investors at the very beginning of the Corona, but the Corona crisis hit many commercial centers hard and raised a big question mark regarding their economic future.
Despite the understandable pessimism surrounding the economic horizon of these assets, it must be noted that a return to routine, even if it takes longer than expected, is likely to return the attractiveness of these investments for a variety of reasons, including the huge cost of financing assets.
Technology sector He is the big winner of the Corona crisis, as the solutions issued by the technology companies have proven to be more necessary than ever, in the imaginary stress scenario created. In this reality, technology stocks have proven, contrary to all basic intuition, to function well not only in a growing economy but also in a declining economy. The relative weakness of the TA-35 index in recent years has been a noticeable lack of exposure to leading technology stocks, but in the last stock update in August of the TA-35 index, the index received a significant strengthening of a technological component and it constitutes about 28% of its weight in the index. Kadima seems to have straightened out the technological allocation hump of the index.
The cleantech field has been leading the yield chart in recent years, due to growing awareness of environmental issues, alongside a sharp rise in the relative attractiveness of energy from alternative sources, relative to black energy. The Tel Aviv-35 index absorbed last year another company active in this field.
It is worth noting that the TA-35 index enjoys another important advantage over other stock exchange indices that many are unaware of and others lighten its head and is the fact that at the same time there is an active derivatives market, which goes beyond its contribution to liquidity and marketability. Derivatives allow sophisticated investors to hedge the TA-35 index in full or in part, to create diverse investment strategies that combine investing in TA-35 shares, alongside the derivatives market and even to hedge individual securities by investing in options on specific shares launched by the Tel Aviv Stock Exchange. Option spring.
We will conclude by saying that at the beginning of 2021, the TA-35 index is positioned better than ever in order to close gaps compared to other ratio indices. We will all remember that the weight of the TA-35 index shares in the TA-125 index is about 69% and therefore The future performance of the Tel Aviv-35 index will largely determine the momentum in the accepted ratio index of the Tel Aviv stock market.
Veteran investment managers will surely remember other years in which it was very difficult to beat the TA-25 index and the TA-100 index through active management and given the above it will be interesting to see if history repeats itself.
Yaniv Pagot Senior Vice President, Head of Trading, Derivatives and Indices
On the stock exchange
Photographer: Sivan Farage
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A Pander reporter lists the 5 most prominent shares in the institutional purchase last Thursday of the Tel Aviv 35 shares that faithfully represent what has been said in the above article:
Last updated: 14/01/2021