Israeli Pension Funds' Index-Tracking Options Confuse Savers
A new series of financial explainers aims to simplify complex investment topics for Israelis, with the first installment focusing on the confusing nature of "index-tracking" investment tracks within "karnot hishtalmut" (study funds). These funds, intended as a savings vehicle, have seen their investment strategies become opaque despite regulatory efforts to standardize them.
The core issue, according to financial advisor Tomer Varon, is that fund names like "stock index tracker" do not clearly disclose the underlying markets, companies, or currencies in which the money is invested. For example, the largest such fund managed by Meitav tracks five indices in sectors like semiconductors and communications, but all are concentrated in the U.S. stock market, with about 70% of exposure tied to companies also found in the Nasdaq 100. While this might suit investors seeking tech exposure, the lack of clarity prevents informed choices.
Other major funds from Altshuler Shaham, Harel, and Phoenix also show significant concentration in the U.S. market, with 85% to 100% of their index-based investments focused there. Menora Mivtachim offers a different approach, using seven indices based on factors like value and growth, with about a quarter of its portfolio in Israeli stocks. Currency hedging also varies widely, impacting returns; Meitav, with minimal foreign currency exposure, saw higher returns than Harel in early 2026 when the dollar weakened.
The regulatory reform implemented in July 2024 aimed to create uniform names and policies for passive investment options. However, the Israel Securities Authority's implementation, requiring at least three dissimilar indices with specific weightings, has not guaranteed transparency. The problem persists because even diverse indices can be tied to the same market, leading to concentrated stock holdings. The regulation counts indices, but savers need to understand their actual exposure.
Ultimately, while the reform intended to offer clear passive alternatives to costly active management, it has resulted in funds with the same technical classification but vastly different investment decisions. Savers are left relying on past performance, potentially choosing funds based on short-term gains rather than a clear, long-term investment strategy. The article suggests that funds should clearly display their underlying indices, weightings, actual exposure, and currency policies to enable genuine comparison and informed decision-making.
