Bank of Israel to Invest in Index Equities
With the increased risk profile of sovereign bonds and other fixed income instruments, many central banks are rethinking their asset allocation for reserves. In addition, government bonds have yielded historic lows in recent months. A decade ago, a majority of central banks wouldn’t even contemplate investing reserves in equities, besides central banks like the Saudi Arabian Monetary Agency.
By the end of 2011, the Bank of Israel plans to invest a portion of its reserves in the stock market. The investments will be based on indexing rather than active equity management. Beta strategies are becoming widely accepted by conservative investors such as central banks.
Another bit of news is that the Bank of Israel plans to utilize external managers for this equity pilot program.
The Bank of Israel has around US$ 77 billion in reserves. There has been no formal announcement on what percent will be allocated to equities in the future.