Altshuler Shaham has yet to regain momentum—outflows continue despite strong returns last year. The past few months have spoiled the party, as the firm’s bias toward the U.S. market has once again weighed on its performance relative to competitors. Speaking at the Capital Market Conference for Long-Term Savings, Gilad Altshuler, co-founder and major shareholder of the investment house, explained his preference for the American market.

"If we look at the past 30 years, the Tel Aviv Stock Exchange would need to triple its returns just to match the Nasdaq or S&P 500. The Israeli market has significantly underperformed because it lacks technology stocks. Israel has plenty of leading tech companies, but they all trade overseas—on Wall Street. The question is whether the future belongs to real estate, insurance, gas, and banks, or to the next big innovations—ones we don’t even know about yet, but that will eventually turn into trillion-dollar giants."

"We’re sitting here, a group of investment managers, and not a single one of us bought Tesla or Nvidia when they were small companies. None of us bought Apple when it was on the brink of bankruptcy. None of us bought Google. That’s because, as seasoned investors, we focus on P/E ratios, book value, and growth."

Altshuler recently stated that despite the local market's strong performance over the past year, Wall Street remains the place to be over the long term. Altshuler Shaham continues to focus its equity investments abroad—not due to Israel’s economic situation, which he describes as strong, but because of the opportunity in technology companies. He pointed out that time and again, people have assumed U.S. indices were at their peak, only for them to break new records. The explanation? Technological revolutions. "First, it was the cloud revolution. Now it’s AI. And already, people are talking about quantum computing. The future will bring even more developments that we can’t yet imagine, and they will drive the market forward."

How Will Donald Trump Impact the Market?

"Trump thinks like a businessman. He operates as a dealmaker. He has no problem doing business with people like Putin or Kim Jong-un. Maybe that’s good for the economy—I don’t know if it’s good for humanity. Either way, I wouldn’t put too much weight on Trump. What really moves the global economy are demographics and innovation. It doesn’t matter who has been president of the U.S. over the past 20 years—none of them invented Tesla, Nvidia, Google, the Metaverse, or Apple."

The Institutional Investor Challenge

Altshuler is applying these insights to his firm’s investment strategy, but there’s another reason behind it: the Israeli market is simply too small for large institutional investors. There isn’t enough quality supply. Altshuler was one of the first to aggressively shift investments abroad, a move that paid off—until he overextended into China. That misstep led to an unusual situation with the firm’s returns: over a 10-year period, Altshuler Shaham ranks at the top; over five years, at the bottom; and over the past year, back at the top.

Overall, the firm has delivered strong long-term returns. And as more time passes since that ill-fated China investment (about three and a half years ago), performance figures will "smooth out," and the penalty will lessen. In the meantime, Altshuler Shaham is still seeing fund outflows to competitors, but at a slower pace.

As with most institutional investors, Altshuler Shaham places the majority of its equity allocation abroad—just at a slightly higher percentage. This means that when global markets decline, the firm will take a bigger hit, but when they outperform the Israeli market, it stands to gain more. This is a rough assessment, of course—actual results will depend on the finer details: specific investments, the exchange rate, exposure to the Magnificent Seven, other tech stocks, and more.