Israeli Provident Funds See Second Month of Declines Amid US Market Weakness

Israeli provident funds experienced a second consecutive month of slight declines in July, with the general track funds posting an average negative return of 0.4%. This downturn coincided with weakness in the US stock market, where the S&P 500 fell by 0.1% and the tech-heavy Nasdaq dropped sharply by 6.6%. In contrast, the Tel Aviv Stock Exchange showed gains, with the TA-35 and TA-125 indices rising by 2% and 1.5%, respectively, led by banking and financial stocks. Technology and real estate shares declined during the same period.

The general track, which holds about 65% of the provident funds' total assets (330 billion shekels out of 518 billion as of June 2026), is the main investment route for savers. Meitav's fund is the largest with 35.5 billion shekels in assets. Yelin Lapidot's fund recorded a negligible 0.01% drop in July but has delivered a 4.2% return year-to-date, below the category average of 5.4%. Yair Lapidot, co-manager and a prominent voice in Israeli capital markets, warns that the current stock rally may lead to lower future returns, prompting his firm to limit exposure to local equities.

In contrast, Clal Insurance's investment managers have increased their exposure to the local market. Clal's provident fund yielded the highest return in the category at 6.8% since the start of the year, benefiting from an 11.2% rise in the TA-125 index. Nir Ovadia, Clal's senior VP and head of investments, expressed cautious optimism about continued positive trends, driven by US earnings growth and AI investments, but expects more moderate upside going forward. He emphasized the need for prudence in Israel, especially in real estate, given geopolitical uncertainties and recent market volatility.

Ovadia highlighted the strong US corporate earnings season and the ongoing economic resilience despite regional conflicts and geopolitical risks. Clal has reduced some exposures to realize gains but maintains a preference for US technology and semiconductor sectors. The firm also benefits from early-stage investments in AI-related ventures like OpenAI. Overall, the investment approach remains long-term and diversified, balancing risk amid uncertain global and local conditions.