Market Backdrop

The economic consequences of the lockdowns due to the coronavirus are being felt throughout.  Unemployment has risen rapidly, and economic activity has slowed significantly.  The Bank of Israel Research Department now estimates the country’s GDP to contract by 6% in 2020 but bounce back strongly in 2021.  Immigration into the country has also fallen rapidly but we expect pent up demand once the coronavirus come sunder control in the country.  While the country re-opened businesses and activity in the quarter as the virus appeared to be under control, a new wave of infections has forced the government to reclose and reinstate some lockdown measures, again affecting economic activity. Given the new measures we expect GDP growth may be affected even more than recent estimates.

Much like most governments around the world, the Israeli government has also been forced to open its wallet in order to provide some support to families and businesses negatively affected during this pandemic.  The government has issued direct payment to individuals and families and is providing other support measures such as loan guarantees and reduced tax rates in certain transactions.  Debt to GDP will go up this year but we expect a normalization and resumption of strong economic dynamics to continue longer term as the pandemic is in the rear-view mirror. In addition, from a monetary standpoint, the Bank of Israel continues to offer and expand its policies to offer support to banks and the economy.  Its most recent announcement was historic for Israel, as it announced its first ever purchasing of corporate bonds in the secondary markets, providing aid to corporates amid targeting to lower credit cost.  With inflation well below the targeted range, we expect the Bank of Israel (BoI) to maintain a dovish approach for the foreseeable future. The BoI has also continued its activity in the currency market selling shekels in order to maintain an adequate exchange rate, helping the export sector.

Performance and Attribution

The Timothy Plan Israel Common Values Fund bounced back after the steep selloff caused from the coronavirus aftershocks.  The Fund continued to outperform the benchmark TA-125 index during the quarter.  Both sector allocation and stock selection helped the outperformance.  From a sector allocation standpoint, an overweight to IT and underweight to Real Estate helped while an underweight to Health Care hurt performance.  From a stock selection standpoint, good selection in Consumer Discretionary, Industrials, and Financials provided good alpha.  Good performance from Maytronics (Consumer Discretionary), Nova Measuring Systems (Technology), and Tel Aviv Stock Exchange (Financials) were helpful to the quarter’s outperformance. Not owning screened out Teva or LivePerson during the quarter hurt performance.


Although much uncertainty remains as to the resumption of “normal” economic activity, we remain cautiously optimistic that earnings will recover over the next twelve months underpinned by a strong economic expansion. We remain constructive Israeli equities over the long term as the innovation of Israel corporates, accommodative monetary policy, and the strong long-term economic growth trend in the country supports attractive corporate earnings growth and equity prices.

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