An Impossible Mission: Which Flexible Funds Have Consistently Beaten the Market?
A Calcalist review reveals that only a few flexible funds consistently outperform the TA-125 index. As more Israelis direct savings to the capital market, selecting a skilled manager has become a critical decision.
Who are the best investment managers in Israel? While one-year returns generate headlines, they are not necessarily the most important metric for long-term investors. The true test is the ability to beat the market over time. A Calcalist review finds that only a small number of flexible fund managers — the category widely considered the best quality test for an investment manager — have managed to do so in recent years. Notably, not a single fund succeeded in beating the TA-125 index in each of the last four years.
In a period where more Israelis are directing their savings into the capital market, choosing an investment manager has become a more significant decision than ever before. Those seeking managers who consistently generate value, rather than benefiting from a single successful year, will find answers in the flexible fund segment.
Wide Latitude as a Quality Benchmark
The Israeli mutual fund industry manages 838.5 billion shekels, serving as the primary savings channel for the public. Flexible funds, by contrast, manage only 8 billion shekels. Despite their modest weight, this category is considered the ultimate test of an investment manager's quality. Unlike most fund categories where investment policy restricts the manager, flexible funds offer an exceptionally wide range of action. The manager decides on equity and bond exposure, market selection, sector focus, and risk management. Consequently, returns largely reflect the quality of the manager's own decision-making.
A Calcalist review examined which funds beat the TA-125 benchmark over calendar years and cumulative three- and five-year periods. Only a handful of funds succeeded consistently. Harel Eitan, managed by Uri Shor, stands out, having beaten the TA-125 index in four out of five measurement points. Mor Investments, Sigma Flexible, and Harel Odem also performed well, beating the index in three measurement points.
The Difficulty of Consistent Outperformance
The data illustrate the complexity of the task. Over the last three years, only seven flexible funds generated cumulative returns higher than the index, which rose by 120%. Looking at the last five years, during which the index surged by 136.2%, only two funds outperformed it: Harel Eitan with nearly 190% and Forz’n Flexible with 140.6%.
The flexible fund segment includes 44 funds managed by 36 different entities. Previous Calcalist checks found no statistically significant link between management fees and performance quality. Notably, Harel Eitan, the most consistent performer in the review, charges no management fees at all.
Adapting to a Changing Reality
Shai Ezer, head of research at Mor Investment House, notes: "The great advantage of flexible funds is the ability to adapt the portfolio to changing reality. The manager decides where to set the tone—whether in the Israeli, American, or other markets." Addressing why investors might not simply choose an index ETF, Ezer explains: "The average investor tends to move into indices only after they have already risen. An active manager in a flexible fund must know how to moderate exposure and distribute it according to market conditions, which is crucial during periods of instability, such as the 2023 legal reform era."
