Investors Flee Israeli Stocks: Here Is What They Are Doing Instead

The month of July continued the trend of recent months in the mutual fund industry. According to an analysis by Naor Cohen, manager of consultant relations at Meitav Investment House, the industry raised a total of about 3.3 billion shekels, with the volume of managed assets rising from 826.6 billion shekels to about 831.7 billion.

This fundraising, in addition to a moderate value increase of about 1.8 billion shekels in the markets, brought some color back to the cheeks after the June drop.

But as in previous months, the positive headline hides strong internal tension. The heroes of the month were again the money market funds, which finished as the most raising category with about 3.8 billion shekels, most of it in shekel funds.

In the relatively high interest rate environment, they continue to be the preferred shelter for funds waiting on the sidelines. The traditional active industry also continued to raise funds, albeit at a more moderate pace of about 2.3 billion shekels, led by the familiar categories of general bonds and government bonds.

The most prominent figure of July repeats the phenomenon that characterized June. From funds specializing in Israeli stocks, both active and passive together, a huge amount of about 5.2 billion shekels was withdrawn. The bulk of the move occurred in ETFs, where about 5.1 billion shekels were redeemed from Israeli stock funds alone. This is the clearest sign that one or more large institutional bodies continue to consistently reduce their position in the local market.

While large institutional money is fleeing Israeli stocks through ETFs, small independent investors are actually flowing in. According to data from the stock exchange member Fire, which concentrates retail client activity, small investors returned in July to increase exposure to Israeli stocks after the June panic, albeit with great caution. In other words, while the large entities are selling, the "small money" is taking advantage of the declines from peak levels to buy gradually.

Within the passive industry, the picture is divided into two. ETFs redeemed a high amount of about 4.25 billion shekels, as mentioned mainly due to Israeli stocks, while tracking funds actually raised about 1.35 billion. The new direction was abroad: in both tracking funds and ETFs, the foreign stock category stood out in fundraising, as investors increase exposure to foreign markets.

It is interesting to note that this move happened against the backdrop of a weak month in global markets. The Nasdaq index fell in July by about 4.2%, and the S&P 500 fell by 0.8%. In Israel, on the other hand, the market stabilized after the storm: the Tel Aviv 35 index even recorded a slight increase of 0.7%. This explains, among other things, why some private investors chose to return to the local market, which looked more stable this month.

The story of July illustrates how important it is not to get carried away by a single headline. A positive net fundraising in the industry can hide opposite and strong movements under the surface, such as the massive flight from Israeli stocks alongside the return flow of small investors.

The main lesson here is that even the large and sophisticated players in the market do not necessarily know how to time it. While a large institutional player sold Israeli stocks in huge volumes, those who held on and did not panic at the peak of the June declines benefited from a rapid stabilization.

For the average saver, the behavior of the money market funds tells the most important story: a huge amount of money is still sitting on the sidelines and waiting. The big question that will determine the trend in the coming months is where, and when, that huge capital will decide to move.