It has undoubtedly been the year of the financial companies on the Tel Aviv Stock Exchange. The Tel Aviv Insurance and Financial Services Index has risen by some 200% in the past twelve months, while the Banks5 Index has risen by about 80%. For the sake of comparison, the broad Tel Aviv 35 and Tel Aviv 125 indices have risen by only 50% in the same period. The stock exchange is now trying to take the success to the next stage, and is launching two new indices: banks, and banking and insurance. The companies making up the new indices will not be weighted by market cap in the traditional way; the performance of the new indices will be affected equally by all the stocks they comprise.
The banks index comprises Bank Leumi, Bank Hapoalim, Mizrahi Tefahot Bank, Israel Discount Bank, and First International Bank of Israel. The banking and insurance index comprises, in addition to these, the five largest insurance companies: The Phoenix Holdings, Harel, Menora Mivtachim, Clal, and Migdal.
The Tel Aviv Stock Exchange explains that the launch of the new indices “is intended to provide the investing public with a broader range of investment products, to boost competition on the capital market, and increase liquidity and marketability on the exchange. The indices in the equal weighting version offer the investor broader diversification between the stocks making up the index, enabling him to reduce the risk that arises from concentration of specific stocks.”
Indeed, this concept lies behind several indices that work on the equal weight method. In the S&P 500 Index, for example, “the magnificent seven” account for more than a third of the movement on the index, but if their market caps are not taken into account, they represent just 1.4% of it. Thus it happens that when these stocks are weak, and second-tier stocks are rising, the S&P 500 Equal Weight Index substantially outperforms the “original” S&P 500.
Unlike in the US, however, the new Israeli indices comprise just 5-10 stocks, such that the diversification is limited. “Globes” calculates that, had these indices been launched a year ago, the new banks index would have risen 72%, versus 79% for the existing Banks5 Index, and the banking and insurance index would have risen 137%, versus 197% for the existing index. The trend is similar if we expand the time range. Over the past three years, the new banks index would have risen 86%, versus 93% for the existing index, and the new banking and insurance index would have risen 145%, versus 192% for the existing Insurance and Financial Services Index. The reason for the theoretical under-performance is the fact that the equal weight method reduces the impact of the outstanding stocks in the sector.
Among the banks, the big two, Leumi and Hapoalim, have almost doubled their values in the past year, and the new index diminishes their weight. Among the insurance companies, it has actually been the small ones like Ayalon, WeSure, and Libra that have risen the most in the past year, and they are not included in the new index at all.
The stock exchange seeks to stress that, had they added the small insurance companies to the banking and insurance index, it would have caused large distortions, since the market caps of these stocks are under NIS 1 billion, and they would have been subject to demand out of proportion to their sizes. Therefore only the five largest banks and five largest insurance companies were included.
The Tel Aviv Stock Exchange finds that the public’s exposure via investment instruments that track the various indices is mostly to the main indices. Funds that track these indices (the Tel Aviv 35, the Tel Aviv 125, and the Tel Aviv 90) currently manage about NIS 58 billion. Funds that track the banking indices (there several such indices) manage NIS 31 billion. But the public has missed out on the rise in the Tel Aviv Insurance and Financial Services Index, which is tracked by funds managing an aggregate NIS 3.3 billion only.
The rise in this last index stems partly from the general rise in the stock market. This swells the value of the insurance companies’ own equity portfolios, and of the customer portfolios they manage, and hence the management fees they charge. It also stems from the fact that, from late May, the insurance companies began to publish financials under a new accounting standard that increases their ability to recognize profits.
Nevertheless, even after all the sharp rises, the market caps of the insurance companies are a long way below those of the banks. The largest insurance company on the Tel Aviv Stock Exchange in market cap terms is The Phoenix Holdings. Its market cap of NIS 29 billion is higher than that of the smallest bank (First International), which is NIS 22 billion, but lower than those of the other four main banks. Bank Leumi and Bank Hapoalim are the largest companies on the Tel Aviv Stock Exchange by a disatnce, with market caps of NIS 95 billion and NIS 84 billion. After them come Mizrahi Tefahot Bank, at NIS 54 billion, and Discount Bank, at NIS 39 billion. As for the smaller insurance companies, Harel has a market cap of NIS 21 billion, and that of Menora Mivtachim is NIS 19 billion. Clal Insurance weighs in at NIS 13 billion, and Migdal at NIS 11 billion.
Published by Globes, Israel business news – en.globes.co.il – on August 20, 2025.
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