Israeli Mutual Funds Pull in 7.6 Billion Shekels in October Despite Domestic Dips
Israel's mutual fund industry attracted 7.6 billion shekels in October, driven by overseas equity and money market funds, while domestic stocks faced outflows amid political uncertainty.
Despite a mixed month in overseas markets and declines in the domestic market due to election results, Israel's mutual fund industry wrapped up October with positive inflows of approximately 7.6 billion shekels. This fresh capital infusion brought total assets under management in the industry to around 859 billion shekels, representing a 13.5% jump compared to the beginning of the year.
However, a closer look at where investors channeled their funds reveals significant disparities and a selective approach. While overseas equity-focused funds—both passive, primarily tracking the S&P 500, and active—recorded robust inflows of 7.9 billion shekels last month, their local equity counterparts experienced outflows of 3.2 billion shekels.
"We saw that investors reduced their exposure to Israel over the past month," said Lior Kagan, CEO of Meitav Investment House mutual funds. "It began in the period leading up to the elections, likely driven by uncertainty and perhaps anticipation of an inconclusive political outcome, which led some investors to doubt whether the local market could sustain its positive momentum."
Political Uncertainty Weighs on Local Equities
Following the election results and concerns over a political deadlock, the Israeli stock market ended October on a negative note. The Tel Aviv 35 Index dropped 3.5%, the Tel Aviv 125 Index fell 3.4%, and the Tel Aviv 90 Index retreated 3.1%. Conversely, the U.S. stock market experienced mixed trends, with the Dow Jones Industrial Average gaining about 1.9%, the S&P 500 slipping 0.9%, and the Nasdaq Composite dropping 5.3%.
Passive products, including exchange-traded funds and index-tracking funds, led overall industry inflows last month with approximately 4.8 billion shekels. Yet, significant gaps emerged between categories, marked by heavy inflows into overseas tracking funds and outflows from domestic equivalents. Market observers note that this shift was primarily driven by institutional investors rather than the general public.
Money market funds continued to shine, attracting about 3.7 billion shekels in October. These funds have led industry inflows since the beginning of the year, pulling in nearly 38 billion shekels over the past ten months and managing a total of 222 billion shekels—over a quarter of the industry's total assets.
"People prefer to sit on the fence at this stage, and in such situations, new money typically flows into money market funds while exiting active funds," said Shay Yaron, portfolio manager at Altshuler Shaham. He added that persistent inflationary pressures, stalled interest rate cuts, and geopolitical tensions have reinforced this cautious stance.
