Between the end of 2025 and the end of August 2026, the S&P 500 rose 12.3%, from 6,846 to 7,686. Anyone who held the index through an "S&P 500 tracker" study fund track saw a return of 5.2% to 5.8% over the same period.
Where did half the return go? Not to fees and not to a manager's mistake. It went to the exchange rate: over that period the dollar fell from 3.19 to 2.99 shekels, a drop of 6.3%. A US stock that rose 12% in dollars is worth about 5% more in shekels. That is the whole calculation.
The risk nobody chose
Most savers think of risk on one axis: how much equities, how much bonds. But every portfolio has a third axis: how much of the money is tied to a foreign currency. That is currency exposure, and it behaves completely differently from equities.
Here is how much of each type of study fund track is exposed to the dollar and other currencies, as of the end of August 2026:
| Track | Currency exposure | What it means |
|---|---|---|
| General | 18%–21% | A 10% move in the dollar moves the track by about 2% |
| Equities | 18%–30% at most providers | Part of the foreign exposure is hedged |
| S&P 500 tracker | about 100% at most providers | Every move in the dollar passes straight to your savings |
| S&P 500 tracker, Ayalon (new track) | 5% | The dollar exposure is almost fully hedged |
In a year like this one, the difference between the last two rows is roughly the 6% the dollar fell. Same index, same stocks, a different result, because of one currency decision most savers do not know was made. Ayalon's track is new and has no full-year return yet, so this comparison illustrates the math rather than a measured result.
Exposure abroad and exposure to foreign currency are not the same thing. You can be 100% abroad with 5% dollar exposure, or 2% abroad and still exposed to the dollar through derivatives. Check both numbers.
So is hedging good?
Not necessarily. This year, as the shekel strengthened, whoever hedged came out ahead. But dollar exposure plays a role that matters especially for an Israeli saver: it is a shock absorber.
When something bad happens here, in the Israeli economy or in security, the shekel usually weakens and the dollar strengthens. Whoever holds part of their savings in dollars sees that part rise in shekels exactly when the Tel Aviv exchange falls. That is real diversification of a kind that is hard to get any other way. Whoever hedged everything gave it up.
The opposite holds when the shekel strengthens, as it did this year: dollar exposure reduces returns. And the direction is not fixed either: from the end of August to mid-October the dollar had already rebounded to 3.10 shekels.
How institutions think about it
In twenty years on the institutional side, in every investment committee I sat on, currency was a separate line in the discussion. Not the by-product of other decisions, but a decision in its own right: how much of the portfolio do we want tied to the dollar, why, and what do we do if the shekel moves 10% either way.
For most private savers it is the reverse. Dollar exposure is whatever falls out of the tracks they picked, and nobody ever put it into one picture. Someone with a pension in a general track, a study fund in an S&P track and a brokerage account in dollars can discover that half their savings is tied to the dollar without that ever having been a decision.
What this means for you
- Check how much of your savings is exposed to the dollar. The track lookup page (in Hebrew) shows the currency exposure of every track at every provider.
- Connect all your products. The exposure that matters is the whole portfolio's, not a single track's.
- Decide, do not guess. There is no single right number. Someone who plans to live in Israel and spend in shekels needs fewer dollars than someone who plans to spend part of the year abroad. But the number should be a decision.
The bottom line
This year the dollar took half the return of S&P 500 tracks. In another year it will add to it. The point is not to guess where the shekel goes, but to know how much of your money depends on it, and to make sure that is the number you chose. Equities, bonds and currency: three axes, three decisions.
Data: S&P 500, FRED (SP500), closes on 31/12/2025 and 31/08/2026; USD/ILS representative rate, Bank of Israel; track exposures and returns, Ministry of Finance Gemel-net database as of end of August 2026 (returns before management fees). General information only; not investment advice or marketing. Past performance does not indicate future returns.
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