Israeli Active US Equity Funds Struggle to Beat the S&P 500 Index
A review of US-exposed mutual funds in Israel reveals that over three years, almost none beat the S&P 500, echoing global data showing high active fund underperformance.
When excluding currency exposure, over a three-year period, not a single mutual fund investing in the United States has managed to beat the S&P 500 index. The benchmark posted a return of 72.15% during this timeframe, outpacing every single fund in the category. However, even when factoring in currency fluctuations and measuring returns in shekels—translating the dollar-denominated index performance into local currency terms—the results improve significantly, yet remain far from impressive.
The shekel-denominated return of the index over the past three years stands at approximately 35.5%, and only three funds managed to surpass it. Taking the top spot is the 'Kowen Global US Equities' fund, a tiny vehicle managing 20 million shekels where investment management is handled by Kowen Investment House, recently acquired by the HiTechZone consumer club, boasting a return of 72.1%. In second place is the Altshuler Shaham S&P 500 fund, a large vehicle managing 615 million shekels with a 48.3% return, followed in third place by the Ayalon US Equities fund, another small vehicle managing 48 million shekels with a return of 47.4%. The average category return stands at 31.1%.
Short-Term Trends and Underperformers
Among the underperformers, Ksam Active US Equities stood out with a mere 11.4% over three years, alongside Harel Overseas US with a modest 3% return. Over the past 12 months, however, results appear more balanced: eight funds managed to beat the shekel-denominated return of the S&P 500, which reached 7.5%. Ayalon US Equities performed notably well with a return of 22.7%, while Harel Overseas US lagged behind with a negative return of 8%.
According to Dror Berger, an overseas equities portfolio manager at Altshuler Shaham, the US markets are among the most sophisticated and competitive globally. "The solution to stock picking and short-term risks is a long-term perspective. I disagree with the notion that Israeli investors cannot beat the indices abroad. The bottom-up fundamental analysis we perform on US companies is entirely identical to what we do domestically—we examine financial statements, listen to conference calls, and even meet with company managements via Zoom or at US conferences. Large institutions like Altshuler Shaham enjoy high access to advanced information systems, the sell-side, brokers, and the companies themselves, which facilitates management."
"I disagree with the notion that Israeli investors cannot beat the indices abroad. The bottom-up fundamental analysis we perform on US companies is entirely identical to what we do domestically."
Regarding the supposed advantage enjoyed by managers investing in Israel—who know local companies and their senior executives intimately—Berger explained that excessive familiarity with a company's CEO can sometimes work to a manager's disadvantage. Such closeness can derail original thinking and erode an investment manager's critical edge over time.
Navigating Active Management vs. Passive Benchmarks
Addressing weak results, Berger added that not all funds can be benchmarked against the S&P 500, as some specify alternative reference indices in their prospectuses, such as the Nasdaq or Russell. Nevertheless, it is safe to assume that when an Israeli investor weighs whether to invest in an active mutual fund within the US-exposed currency category, a primary alternative under consideration is the S&P 500 index, which attracts a significant portion of the Israeli public seeking exposure to the American market.
When asked about the extent to which fund managers utilize currency exposure as an investment tool, Berger explained that it depends on the fund's prospectus; some funds hedge currency risk while others remain exposed. "As a rule, I strive not to take a directional position on the currency itself within an exposed fund. Ultimately, an investor in a dollar-denominated fund must measure performance in dollar terms."
Ofir Weitzman, overseas equities portfolio manager at IBI Mutual Funds, explains that beating the S&P 500 is extremely difficult, yet achievable. "In my view, most funds in Israel and globally are a form of 'disguised indexing.' That means they attempt to beat the index through minor overweights or underweights in specific sectors or stocks, while avoiding taking significant positions out of fear of straying too far from the benchmark. A manager who fails to take meaningful risks will never consistently beat the index. To outperform, one must identify long-term trends, take high-conviction positions, and know how to act when the market presents opportunities—such as when a stock like Google trades at a multiple of 14. That is where courage is required to generate true alpha in an active equity fund."
Insights from Global Studies on Active Management
The modest results achieved by Israeli managers in this category are mirrored by global research. Two major studies published last year illustrate just how challenging it is for active investment managers to consistently outperform American indices.
According to the SPIVA year-end 2025 report, published in 2026 by S&P Dow Jones Indices and authored by Anu Ganti, Davide Di Gioia, Nick Didio, and Liam Flaherty, 79% of large-cap active equity funds lagged behind the S&P 500 in 2025. Over a ten-year horizon, the proportion of underperforming funds rose to 86%, and over a 20-year period, it reached 93%. When risk-adjusted returns were analyzed, the failure rate was even higher. The study incorporated defunct and merged funds to eliminate survivorship bias.
A similar picture emerges from the Morningstar Active/Passive Barometer for mid-2025, written by Brian Armour, Eugene Garcia-Gubatikov, and Maciej Kowara. The researchers examined 9,204 funds managing approximately $24 trillion collectively, finding that only 21% of active strategies survived and outperformed passive alternatives over the past decade. Within the large-cap blend category, the success rate stood at a meager 5.8%.
