William Scholes
קרן מרדכי
13/01/2014
The Aberdeen Israel Fund. An interview with the fund manager.
William Scholes is an Assistant Investment Manager on the Global Emerging Markets Equity Team. William joined Aberdeen in 2009 on the graduate rotation scheme. William graduated with a BA (Hons) degree in Modern and Medieval Languages from Magdalen College, Oxford.
1. The danger in investing in Israel, generally involves its hostile environment. How do you combine those risks in your investments strategy?
As bottom-up stock pickers, we look first at the quality of the company and the sustainability of the business model over the long term. Macroeconomic and geopolitical factors would not lead the investment case, and indeed ‘hedging’ risks of this sort would be near impossible.
2. Did something in your view change in light of the civil war in Syria? Do you predict that the capitals prices in Israel will extend, do to the US-Iran talks on Iran nuclear energy wishes?
Any progress in talks between the US and Iran is positive, and not just for this region. However, our investment strategy is based on a minimum theoretical holding period of 5 years or more, and in practice it is on average far longer. We are focused on company fundamentals, and so while events such as these may bring about volatility, we aim to look past these factors, and often use price weakness as an opportunity to top up where appropriate.
3. Do you invest in mid-cap companies in Israel? While investing in Israeli companies - What is your limit market-cap wise?
The Israel Fund invests in all sizes of companies, and our only limit would be based on liquidity constraints. Some of the smaller companies in the fund have market caps of ~ USD 300m.
4. The declaration of the pharmaceutical company TEVA of her hundreds of Israeli workers layout, consider by some as the first sign to a rise in the national unemployment. What is your analysis on Teva, her last announcement on the layout and its share price?
Decisions such as these are never straightforward and we are not in a position to comment on the reduction in workforce. However, we continue to feel that TEVA is a very well-run company in an industry facing narrower margins as a function of heightened competition.
5. In the last 2 years Tel Aviv stocks exchange has somehow "dried out". what do you think is the part of the foreign investor in that process? What the regulator or the policy makers can do about the shrinking trades volume?
Fewer volumes flowing through the TASE has in large part resulted from Israel’s upgrade from emerging market to developed, and sitting outside the Euro area indices has meant that volumes of passively invested foreign capital have passed the country by. There is little the country can do about this, however continuing improvements in disclosure and engagement by Israeli companies can still attract greater amounts of active foreign capital, especially given how Israel’s GDP growth prospects compare to other developed markets. Certain measures have been put in place to spur volumes, including extending trading hours and enforcing the deconsolidation of conglomerate cross-holdings. Any structural measures or tax incentives to further encourage investment would be welcome, while equally the offshore gas fields should continue to draw greater levels of interest from an international investor base, especially if regulation can be finalized soon.
6. The major stocks indexes in Israel (TA 25, TA 100) are lagging the American one (S&P). Is that a part in a process of a wide global one (the U.S. economy vs. the rest of the world) or its more local and "the blame" is on the Israel economy that don’t live to its expectations?
This could be attributed to any number of factors. The country may have been upgraded to developed status, but still exhibits various attributes of an emerging market. No doubt local valuations reflect a ‘discount’ that has its roots in lesser market depth, greater perceived exogenous risks, and lesser liquidity. However, it is not just a question of market depth but also the relative significance of certain industries in the index weighting. Fundamentally though, a pickup in global trade will be led by the US and global investors may be buying into that. It is also worth pointing out that the TA-100 has outperformed the S&P 500 over a longer 10 year time period.
7. In the last quarter, Israel economy has jumped to high figures. Is this one separate circumstance or real change in the business environment?
Not sure I understand this question. The calculation of GDP was modified which resulted in upgraded figures. These figures may better reflect reality, but this remains a statistical rather than commercial issue.
8. Israel treasury minister is supposed to reveal the next chairman of the Federal Reserve in Israel next week. What do you think about the long process that was combined in choosing the chairman?
The process has taken a long time, so it will be positive for the market simply to have some clarity over the next governor of the Bank of Israel. Given Ms Flug has been acting governor for the past few months, there will be some additional benefits of continuity.
9. In the coming years, Israel financial market will invite foreign mutual fund to merchandise their funds in Israel. What would be the influence of this act on the local mutual funds?
Any measures that promote market depth and efficiency should be positive; the impact on local mutual funds is hard to assess. Foreign capital will bring managers with new perspectives, however there can often be no substitute for local insight which is why we visit Israel twice a year to conduct due diligence ‘on the ground’.
10. Israel real estate has risen sharply in recent years. Do you consider this outcome as a "bubble"? What would be the influence on the local economy in this circumstance?
While real estate values have risen significantly in places, the effects have been quite localized. I believe the government has registered some concern over the affordability of housing, especially given rents form a significant part of the CPI basket. Our principal exposure on the residential side would be through banks offering mortgages, who affirm that there has been no loosening of lending policies and remain confident of asset quality. Meanwhile, the penetration of private sector credit looks reasonable relative to long term trends, and on an absolute basis, and measures implemented by the Central Bank to cool the market indicate the willingness to address this issue. Overall, while we are comfortable with the quality of our holdings in the context of any downward adjustment.
William Scholes is an Assistant Investment Manager on the Global Emerging Markets Equity Team. William joined Aberdeen in 2009 on the graduate rotation scheme. William graduated with a BA (Hons) degree in Modern and Medieval Languages from Magdalen College, Oxford.
1. The danger in investing in Israel, generally involves its hostile environment. How do you combine those risks in your investments strategy?
As bottom-up stock pickers, we look first at the quality of the company and the sustainability of the business model over the long term. Macroeconomic and geopolitical factors would not lead the investment case, and indeed ‘hedging’ risks of this sort would be near impossible.
2. Did something in your view change in light of the civil war in Syria? Do you predict that the capitals prices in Israel will extend, do to the US-Iran talks on Iran nuclear energy wishes?
Any progress in talks between the US and Iran is positive, and not just for this region. However, our investment strategy is based on a minimum theoretical holding period of 5 years or more, and in practice it is on average far longer. We are focused on company fundamentals, and so while events such as these may bring about volatility, we aim to look past these factors, and often use price weakness as an opportunity to top up where appropriate.
3. Do you invest in mid-cap companies in Israel? While investing in Israeli companies - What is your limit market-cap wise?
The Israel Fund invests in all sizes of companies, and our only limit would be based on liquidity constraints. Some of the smaller companies in the fund have market caps of ~ USD 300m.
4. The declaration of the pharmaceutical company TEVA of her hundreds of Israeli workers layout, consider by some as the first sign to a rise in the national unemployment. What is your analysis on Teva, her last announcement on the layout and its share price?
Decisions such as these are never straightforward and we are not in a position to comment on the reduction in workforce. However, we continue to feel that TEVA is a very well-run company in an industry facing narrower margins as a function of heightened competition.
5. In the last 2 years Tel Aviv stocks exchange has somehow "dried out". what do you think is the part of the foreign investor in that process? What the regulator or the policy makers can do about the shrinking trades volume?
Fewer volumes flowing through the TASE has in large part resulted from Israel’s upgrade from emerging market to developed, and sitting outside the Euro area indices has meant that volumes of passively invested foreign capital have passed the country by. There is little the country can do about this, however continuing improvements in disclosure and engagement by Israeli companies can still attract greater amounts of active foreign capital, especially given how Israel’s GDP growth prospects compare to other developed markets. Certain measures have been put in place to spur volumes, including extending trading hours and enforcing the deconsolidation of conglomerate cross-holdings. Any structural measures or tax incentives to further encourage investment would be welcome, while equally the offshore gas fields should continue to draw greater levels of interest from an international investor base, especially if regulation can be finalized soon.
6. The major stocks indexes in Israel (TA 25, TA 100) are lagging the American one (S&P). Is that a part in a process of a wide global one (the U.S. economy vs. the rest of the world) or its more local and "the blame" is on the Israel economy that don’t live to its expectations?
This could be attributed to any number of factors. The country may have been upgraded to developed status, but still exhibits various attributes of an emerging market. No doubt local valuations reflect a ‘discount’ that has its roots in lesser market depth, greater perceived exogenous risks, and lesser liquidity. However, it is not just a question of market depth but also the relative significance of certain industries in the index weighting. Fundamentally though, a pickup in global trade will be led by the US and global investors may be buying into that. It is also worth pointing out that the TA-100 has outperformed the S&P 500 over a longer 10 year time period.
7. In the last quarter, Israel economy has jumped to high figures. Is this one separate circumstance or real change in the business environment?
Not sure I understand this question. The calculation of GDP was modified which resulted in upgraded figures. These figures may better reflect reality, but this remains a statistical rather than commercial issue.
8. Israel treasury minister is supposed to reveal the next chairman of the Federal Reserve in Israel next week. What do you think about the long process that was combined in choosing the chairman?
The process has taken a long time, so it will be positive for the market simply to have some clarity over the next governor of the Bank of Israel. Given Ms Flug has been acting governor for the past few months, there will be some additional benefits of continuity.
9. In the coming years, Israel financial market will invite foreign mutual fund to merchandise their funds in Israel. What would be the influence of this act on the local mutual funds?
Any measures that promote market depth and efficiency should be positive; the impact on local mutual funds is hard to assess. Foreign capital will bring managers with new perspectives, however there can often be no substitute for local insight which is why we visit Israel twice a year to conduct due diligence ‘on the ground’.
10. Israel real estate has risen sharply in recent years. Do you consider this outcome as a "bubble"? What would be the influence on the local economy in this circumstance?
While real estate values have risen significantly in places, the effects have been quite localized. I believe the government has registered some concern over the affordability of housing, especially given rents form a significant part of the CPI basket. Our principal exposure on the residential side would be through banks offering mortgages, who affirm that there has been no loosening of lending policies and remain confident of asset quality. Meanwhile, the penetration of private sector credit looks reasonable relative to long term trends, and on an absolute basis, and measures implemented by the Central Bank to cool the market indicate the willingness to address this issue. Overall, while we are comfortable with the quality of our holdings in the context of any downward adjustment.
