Almost two years ago, a special committee set up by the Israel Securities Authority and headed by Professor Yishai Yaffe presented a report stating that the investments of financial institutions failed to beat the returns on the S&P 500 index, which consists of the 500 largest companies traded in the United States.
The report angered the financial institutions against Prof. Yaffe. They argued that the panel’s conclusions were based on faulty comparisons. But a Globes examination of returns for advanced training funds and pension funds shows that investment tracks with exposure to the S&P 500 have generated much better returns in the past 18 months than equity tracks for provident and pension funds.
In the year between March 2022 and February 2023, three of the five advanced training fund tracks with the best returns were those that tracked the index, and the average return of all three was 5%.
The picture is similar for pension funds. Of all the institutions offering a product that tracks the S&P 500 index, this product gave one of the best returns, beating almost every other product out there.
Although the yield was slightly lower in March, the average for investment management firms offering this probability is negative 0.33%, the start to the year is still very positive for products that track the S&P 500, as the index rose 7.7% in Year-to-date, up 0.6% in April so far.
This comes at a time when local stock indices have declined. The Tel Aviv 35 is down about 4% year-to-date, and the Tel Aviv 125 is down more than 5%. Thus, any exposure to the S&P 500 at the expense of the local stock market will boost returns.
The result is clear: between January and March, products that track the S&P 500 index returned more than 7.3%, while active stock products in the advanced training fund sector posted an average return of just 1.5%, while in pension funds (the track for those funds) at the age of fifty and under) had an average return of 1.9%.
However, according to sources in financial institutions, the gap in returns is not the result of mismanagement, but is only due to the weakness of the shekel against the US dollar, which is trading in the S&P 500 index. The shekel has weakened by 4% so far this year.
“In testing results, the S&P 500 track record has a better return than stock tracks for one reason only – it is 100% exposed to foreign exchange,” explains one senior manager in the savings industry.
“Otherwise, these paths would not have yielded better returns than others, because over time they have not proven themselves against the paths of common stocks. The return gap is a result of the currency, not the instrument.
“Other indices have had better returns since the beginning of the year. But at this time, this path certainly works better than the equity paths, mainly because it excludes investing in stocks in Israel, which have performed much worse in the past few months.”
In fact, while the S&P 500 is up 7.7% for the year so far, as we mentioned, the Nasdaq is up about 19%. In France, the CAC 40 is up 17% this year, and the Euronext 50 is up more than 16%, more than double the rise in the S&P 500.
The same source says that if the advanced training fund or pension fund savings had been able to invest in a product that invests in euro-denominated assets, they would have had better returns than they would on the dollar-denominated S&P 500, where the euro has strengthened. against both the dollar and the shekel recently. However, the source says that the S&P 500, which represents the global economy, is the right indicator to track after all.
Published by Globes, Israel business news – en.globes.co.il – on April 24, 2023.
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