PRESS RELEASE

The public's financial assets portfolio in the second quarter of 2015

During the second quarter of 2015 the value of the public's financial assets portfolio declined by about NIS 48 billion (1.5 percent), and reached about NIS 3.28 trillion at the end of June.

The decline during the second quarter derived mainly from the decline in the value of government bonds and makam (about NIS 47 billion, 5.6 percent) and from a decline in the value of the portfolio traded abroad (about NIS 13.4 billion, 2.8 percent).

The value of the asset portfolio managed by institutional investors (excluding mutual funds) declined by about NIS 30 billion (2.3 percent) in the second quarter, to about NIS 1.32 trillion at the end of June. Most of the decline was recorded in the value of nontradable government bonds in the old pension funds—a downward revision of the fair value of government assistance funds as a result of an increase in the interest rate vector.

The trend of net redemptions in the money market funds continued in the second quarter

of 2015 (redemptions of about NIS 6.4 billion, 17.2 percent). 1. The total assets portfolioIn the second quarter of 2015, the value of the public’s financial assets portfolio declined by about NIS 48 billion, a decline of about 1.5 percent in real terms, reaching about NIS 3.28 trillion at the end of June.

The decline in the second quarter was primarily due to the decline in the value of tradable government bonds and makam (about NIS 34 billion, 6.8 percent) and in the value of nontradable government bonds managed by the old pension funds (NIS 13 billion, 3.9 percent). In parallel, the value of shares traded abroad declined (about NIS 9 billion, 3.2 percent), mainly as a result of the strengthening of the shekel vis-a-vis the dollar. The public’s financial assets portfolio relative to GDP declined by about 8.2 percentage points during the second quarter, to about 292 percent at the end of June 2015 (Figures 2 and 3). This followed an upward trend since the second quarter of 2013. The decline was a result of the combination of a decline in the value of the assets portfolio and an increase in GDP.

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BANK OF ISRAELOffice of the Spokesperson and

Economic InformationSeptember 9, 2015

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Asset portfolio composition: Since the beginning of 2015, there was an increase of about 1.4 percentage points in the share of risk assets, against the background of price increases on markets in Israel and around the world. In contrast, there was a decline of about 0.4 percentage points in the share of foreign exchange assets, mainly the result of the strengthening of the shekel vis-a-vis the dollar.

2. The securities portfolio, by main components

Shares in IsraelDuring the second quarter of 2015, the balance of shares held in Israel by the public increased by about NIS 3 billion (0.5 percent), to about NIS 545 billion at the end of June—a combination of net investments and price increases on the Tel Aviv Stock Exchange.

BondsDuring the second quarter of 2015, the value of negotiable corporate bonds in Israel declined by about NIS 0.5 billion (0.2 percent), to about NIS 263 billion at the end of June, as a result of net investments in bonds, which were offset by bond price declines on the Tel Aviv Stock Exchange.

At the same time, there was a decline of about NIS 34 billion (6.8 percent) during the second quarter in the balance of the tradable government bonds and makam portfolio and by about NIS 13 billion (3.9 percent) in the value of nontradable government bonds.

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Cash and depositsThe value of cash and deposits increased in the second quarter by about NIS 11.5 billion (1.1 percent). Most of the increase derived from an increase in the public’s cash and current accounts balances, which was partially offset by a decline in the value of foreign currency indexed deposits.

The assets portfolio abroadDuring the second quarter of 2015, the value of the portfolio held abroad by Israelis declined by about NIS 13 billion (2.8 percent), to about NIS 470 billion at the end of June, which accounts for about 14.3 percent of the total asset portfolio. The decline was affected by the appreciation of the shekel vis-à-vis the dollar (5.3 percent), which offset price increases and net investments abroad.The value of shares held abroad declined by about NIS 9.2 billion (3.2 percent), to about NIS 274 billion at the end of June. The value of the tradable bonds portfolio abroad declined by about NIS 1.6 billion (0.9 percent), to about NIS 176 billion at the end of June. In addition, there was a decline of about NIS 2.7 billion (11.8 percent) in the value of deposits at banks abroad.

3. The portfolio managed by institutional investors

The value of the assets portfolio managed by institutional investors declined in the second quarter of 2015 by about NIS 30 billion (about 2.3 percent), to about NIS 1.32 trillion at the end of June. Most of the decline was in the value of nontradable government bonds in the old pension funds—a downward revision of the fair value of government assistance funds, as a result of an increase in the interest rate vector. In addition, there was a decline in tradable government bonds and in makam (about NIS 12 billion), and in shares abroad (NIS 4.3 billion).

The share of the portfolio managed by the institutional investors out of the public’s total assets portfolio remained unchanged during the second quarter, at about 40.5 percent at the end of June.

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Exposure1 of the portfolio managed by the institutional investors to foreign assets and to foreign exchange

The increase in the value of foreign assets held by institutional investors continued in the second quarter, to about $80 billion at the end of June. The rate of exposure to foreign assets increased slightly, to about 24.5 percent of the portfolio at the end of June. The most significant change during the second quarter was in the new pension funds, which increased their exposure to foreign assets by about 0.4 percentage points to about 30.2 percent. In contrast, the other institutional investors kept their exposure during the period at levels similar to the previous quarter.

The rate of exposure to foreign exchange, which is measured by the share of assets denominated in and indexed to foreign currency (including derivatives), and was 14.4 percent of total institutional investors’ assets at the end of June. The insurance companies and new pension funds increased their exposure to changes in the exchange rate by about 0.5 percentage points on average. In contrast, the provident and advanced training funds reduced their exposure by about 0.4 percentage points during the quarter.

An analysis of net transactions in institutional investors’ foreign exchange assets shows that in the second quarter, institutional investors continued to partially hedge their investments in foreign exchange assets. Their investments in assets denominated in and indexed to foreign exchange totaled about $1.4 billion. In contrast, they sold foreign exchange totaling about $1.2 billion net through derivative instruments.

1 Estimates of members’ exposure (rather than exposure of the institutional investors themselves) to various risks in the portfolio managed for them by the institutional investors (excluding insurance policies with a guaranteed yield, where the risk is taken on by the institutional investors).

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4. Mutual funds

The value of the portfolio managed by Israeli mutual funds was NIS 247 billion at the end of June, about 7.5 percent of the public's total asset portfolio and about 14.3 percent of the tradable portfolio.

In the second quarter of 2015, the trend of net redemptions (surplus of redemptions over issues, net of dividends) continued, continuing the downward trend in net investment since the second quarter of 2014. As a result of the net redemptions and the decline in asset prices, the value of mutual fund balances declined by about NIS 14.3 billion.

A breakdown of mutual funds by specialization shows that net redemptions in the quarter were concentrated in money market funds (a decline of NIS 6.4 billion, 17.2 percent), In unindexed bonds (NIS 2.2 billion, 7.7 percent), and in government bonds (NIS 2 billion, 3.9 percent).

Further information and details on this subject are available at the BOI Website.

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