Few Israeli Flexible Mutual Funds Consistently Outperform Tel Aviv 125 Index

A recent analysis by Calcalist reveals that only a small number of flexible mutual fund managers in Israel have consistently outperformed the Tel Aviv 125 (TA-125) index over recent years. Flexible funds, which allow managers broad discretion over asset allocation and risk exposure, are considered by many as the best test of an investment manager's skill. Despite managing just 8 billion shekels out of the 838.5 billion shekels in Israel's mutual fund industry, these funds provide a unique benchmark for evaluating long-term performance.

The standout fund is Harel Eitan, managed by Harel's fund company under Uri Shor, which outperformed the TA-125 in four out of five measurement periods. Other notable funds include Meor Investments, Sigma Flexible, and Harel Odem, each beating the index in three periods. Larger funds such as Meor (900 million shekels), Sigma (500 million), and Harel Eitan (400 million) also demonstrated strong results, with Harel Eitan maintaining a 100% equity exposure focused almost entirely on the Israeli market.

Over the past three years, only seven flexible funds outperformed the TA-125, which rose 120% in that period. In the last five years, when the index gained 136.2%, only two funds, Harel Eitan with nearly 190% and Fortune Flexible with 140.6%, managed to beat it. No fund outperformed the TA-125 in all four consecutive years from 2022 to 2025, highlighting the difficulty of consistent outperformance.

Flexible funds are managed by 36 different entities, with large investment houses like Harel, Meitav, IBI, and Phoenix managing multiple funds. Annual management fees range from 0% to 2%, with no clear correlation between fees and performance; notably, Harel Eitan charges no management fees. The flexibility allows managers to adjust exposure to equities, bonds, markets, and sectors based on market conditions, a key advantage during volatile periods.

According to Shay Azar, head of research at Meor Investments, the value of flexible funds lies in their ability to adapt portfolios to changing realities. While passive index funds might outperform during strong rallies, active management can mitigate losses or capture gains during turbulent times. This adaptability is crucial as many investors tend to enter markets after significant rises, potentially missing out on better timing and risk management that flexible fund managers provide.