"Very attractive": Investment manager identifies opportunity in stocks that have fallen by about 40%

Eyal Shina (48) joined the world of investments 20 years ago. "I have always been a very realistic person, and I had a connection to strategy games and competitions, chess and cards," he says. "During my degree, I started to be drawn to the capital market, as the world of investments, and especially the mutual fund market, requires you to be competitive and also to think several steps ahead."

He began his path in 2006 at the Profound investment house as a portfolio and fund manager. After a decade, he moved to Migdal Capital Markets, then was Chief Investment Officer at the Epsilon investment house, and after it was acquired by Kesem of The Phoenix, he was the Chief Investment Officer there. Last month, he joined Pasternak-Shaham as VP of Investments.

Despite the sharp rises in Israel in the last two years and despite the fact that, on the other hand, the market has been treading water in recent months, Shina is not excited. "An investment manager must hold positive underlying assumptions, otherwise it is difficult to manage investments, and my outlook is positive, especially regarding Israel," he says.

"When looking ahead, the Israeli market has unique characteristics relative to any other Western market. While in Europe the population is shrinking and aging, in Israel fertility rates are high. In addition, the Haredi sector and the Arab sector have not yet fully integrated into the labor market, and eventually, this will happen. As they integrate more in the coming decades, they will consume more and contribute to growth. When you combine this with Israeli audacity and brains, endless exits, endless very, very creative entrepreneurs, you get a very strong growth base."

The opportunity in bonds and the risk in stocks

Regarding global markets, Shina estimates that the high interest rate environment in the US is going to become a weight on the economy and the markets. "If inflation does not settle and bond yields rise even beyond the 4.7% they are at today (10-year US Treasury bonds), it is likely that stock investors will suffer much more, because such yields are not only an alternative to the stock market, but also very significant financing costs. This could cause a slowdown in the economy. The American administration understands well the risk of further yield increases and will act to curb it."

However, in his opinion, this is also the reason why there is an opportunity now in the bond field in the US, provided that exposure to foreign currency is neutralized. "This is a current yield that we haven't seen in years, which allows for locking in high interest rates for years ahead and provides a kind of protection in case of a decline in the stock market."

The key: "Maximum exposure to the shekel"

When he builds investment portfolios, Shina prefers to neutralize foreign currency as much as possible. "Clients live in the country and their expenses are in shekels. Investors in the S&P 500 index did not see profits when the index rose in recent months because of the weakening of the dollar, and therefore my preference is maximum exposure to the shekel," he explains.

For a conservative investor, Shina recommends an allocation of 35% to stocks, of which 20% in stocks in Israel and 15% in stocks abroad, mainly in the US. For the debt market, he allocates 65%, of which 35% to corporate bonds in Israel, 15% to Israel government bonds (both with a duration of 5 years), and another 15% to US government bonds with a duration of 7 years, neutralized for foreign currency. He also prefers a slight exposure to the shekel-denominated channel (55%) over the CPI-linked channel (45%).

For an aggressive investor, he suggests an equity exposure of 70%, including 40% in stocks in Israel and 30% in stocks abroad, mainly in the US. He designates the remaining 30% to the debt market, with a distribution of 10% to corporate bonds in Israel and 20% to US government bonds with the same duration (7).

The "non-competitive" industry is good for investors

When we ask him to recommend sectors, Shina flags bank stocks as a central anchor: "The banking industry is not the most competitive, and from the state's side, there is even quite a bit of protection for it. They present exceptional returns on equity, and even after the rises, we are talking about low P/E ratios of 11. Population growth will continue to generate demand for loans, and in addition, banks are labor-intensive entities and service providers, and therefore will benefit from maximum efficiency thanks to the implementation of artificial intelligence tools."

He also identifies an opportunity in the communications industry, "Today the price level in cellular is among the lowest in the world, and in addition, the level of people's dependence on the internet has increased. I want to see someone today who is able to give up the speed of the internet, and I am not talking about giving up the internet at all. We have become accustomed to very, very fast internet, and this infrastructure is held by a limited number of companies, and they know it."

Recommended sectors:

• In Israel: Banks, Communications, Defense.

• Abroad: Long US government bonds, Magnificent 7 ETF (MAGS), Industrial ETF (XLI).

"Therefore, as long as the regulator is not active enough, we will also see price increases in these worlds, and this is good for the investor, even if less so for consumers, and artificial intelligence will also help them in the context of needing fewer service personnel, and this will free up real estate space for them, alongside the desire of controlling owners to distribute dividends."

In the defense field, Shina believes that the sharp declines recorded in the sector's stocks in recent months (about 40% from the peak in the sector index) have created an attractive entry point: "Defense budgets in Israel and the world are only rising and will probably rise more. Defense companies enjoy consistent growth in the order backlog. In recent months, they have fallen by tens of percent, and this makes them very interesting in some cases."

If he prefers exposure to traditional fields in Israel, he finds the bulk of his exposure to technology on Wall Street. Shina recommends exposure to technology giants through the MAGS ETF and to industrial companies (XLI ETF). According to his assessment, the massive investments of technology giants will decrease in 2028, and in the meantime, they are "creating a competitive barrier to entry." Regarding industry, he notes that "the next stage of the artificial intelligence revolution is reaching traditional industrial companies, it is reaching cooling systems, electricity, and construction for server farms. We don't see the change in investors' pricing there yet."

On the other hand, Shina recommends holding an underweight exposure in insurance stocks and being careful about the office market in income-producing real estate: "Insurance companies have recorded sharp price increases, and today their pricing is challenging, especially since they are very biased towards capital market performance. We are after years of rises, and therefore if a period of declines arrives, they will be more volatile. In the office sector, especially outside Tel Aviv, great caution should be exercised. The excess supply versus the challenge in occupying the buildings could harm companies operating in the field."