Israeli Investment Funds' "Index Tracking" Options Confuse Savers
A new series of financial explainers aims to simplify complex investment topics for Israelis, with the first piece focusing on "index tracking" provident funds. Financial advisor Tomer Varon highlights that while these funds are meant to passively follow market indices, their names and structures often obscure the actual investment exposure.
Many "index tracking" funds, despite having broad names, primarily invest in the U.S. stock market, with significant exposure to companies also found in indices like the Nasdaq 100. For example, Meitav's largest fund, managing approximately NIS 2.2 billion, tracks five indices in sectors like chips, communications, and software, but all are U.S.-based. This leads to about 70% of its equity exposure being tied to companies also in the Nasdaq 100, a concentration that savers may not realize they are buying into.
Other major funds from Altshuler Shaham, Harel, and Phoenix also show heavy reliance on U.S. markets, with 85% to 100% of their index-based allocations focused there. In contrast, Menora Mivtachim takes a different approach, using seven indices based on factors like value and growth, and allocating about a quarter of its portfolio to Israeli stocks. Currency hedging policies also vary significantly, impacting returns, as seen in the performance difference between Meitav and Harel during the first half of 2026 when the dollar weakened.
The issue stems partly from a July 2024 regulatory reform intended to standardize investment tracks and improve comparability. However, the Capital Markets Authority's rules, requiring at least three dissimilar indices with specific weightings, can still result in concentrated exposure within the same market. The article argues that the regulation focuses on counting indices rather than ensuring clear investor exposure.
Ultimately, the reform, while aiming to offer a clear passive alternative to active management, has created funds with the same technical description but vastly different investment decisions. Savers are left relying on past performance, potentially choosing funds based on short-term returns rather than understanding the underlying investment strategy, market, and currency exposure.
