Rolle im Portfolio
The iShares MSCI Turkey provides equity exposure to Turkey, the largest economy in emerging Europe. As is the case with all ETFs offering single country emerging market equity exposure, the iShares ETF is best deployed as tactical tool within a well diversified portfolio. The ETF can also be deployed as a core holding complementing exposure to emerging markets in Asia and Latin America. The index’s low to moderate correlations with international stock markets indicate that this fund could provide diversification benefits when added to an existing equity allocation. Over the last three years, The MSCI Turkey Index correlated 32% with the MSCI EM Asia Index and 26% with the MSCI World Index.
The ETF is also suitable for investors with a bullish view on the Turkish stock market. However investors should be aware that the MSCI Turkey Index is not the best proxy for the Turkish economy. The index is heavily biased towards financials (53%), whereas the sector represents less then 5% of GDP.
Before considering an investment, investors should review their portfolio for existing exposure to the Turkish stock market through other holdings to avoid unintentionally over weighting this region. For instance, Turkish equities represent around 10% of the MSCI EM EMEA Index.
Fundamentale Analyse
Structural reforms implemented during the last decade–a requisite of the stand-by agreement signed with the IMF in the early 2000s–set Turkey on a solid economic policy path, allowing it to rebound strongly from the global financial crisis. More recent rounds of reform and consolidation have focused on strengthening the banking sector. Growing confidence in the country’s economic prospects has led to strong growth in private sector credit to levels that could put smaller banks at risk if the recovery were to weaken. As a result, the Central Bank has intervened with the aim of curbing credit expansion by raising reserve requirements.
Turkey finds itself in a challenging position, located between a still struggling Eurozone and a political turbulent Middle East while dealing with social problems of its own. After four years of strong growth, the economy slowed down in 2012, with GDP growing by 2.2%, below the government’s 4% forecast. However, GDP grew by 4.4% y/y in Q2-13 - the 15th consecutive quarter of expansion – well above analysts’ expectations for 3.5%. The main driver was improved domestic demand, with private consumption up by 5.3% y/y and government spending by 7.4% y/y. Having expanded 3.7% y/y in H1-13, the government now expects full year growth of 4% y/y and a higher 5% in 2014. The IMF has marginally lowered its 2013 growth forecast for Turkey to 3.4% from 3.5%, while expecting 3.7% in 2014.
Despite the good GDP readings, the economy faces challenges ahead as indicated by its current account position. Its strong reliance on imports and foreign capital makes Turkey heavily exposed to external shocks. While exports rose by 1.2%, imports jumped by 11.7% in Q2-13, resulting in a ballooning current account deficit. Moreover, the country’s total foreign debt almost has tripled to $350bn over the last decade and over half of it must be either repaid or rolled over within the next 12 months. As a result, short-term liabilities represent about one quarter of GDP. In itself a challenging task; it has been made the more difficult by the fact that the Turkish Lira has lost about 13% versus the USD in the first 8 months of the year.
Despite a depreciating lira, a ballooning current account deficit, and high inflation (e.g. 8.8% in July) the Turkish Central Bank refused to hike rates for most part of the year. Eventually it raised the interest rate corridor ceiling by 0.5% to 7.75% in August - the highest since February 2013. However, this was seen as too little by most market analysts. In a further attempt to support the currency, the bank announced that it will sell a minimum of $100 million a day until further notice. In addition, the bank continues its usual tightening in order to force policymakers to lend only at the top end of the range.
Many market participants are urging the bank to focus more on inflation, fearing a weakening currency would weigh on sentiment and further spur inflation – a self-fulfilling cycle. In addition to the ballooning current account deficit and the depreciating currency, three elections until 2015 and the conflicts in neighbouring countries – not to mention any potential resurgence of internal social tensions - could also weigh on the economic outlook going forward.
Indexkonstruktion
The MSCI Turkey Index provides equity exposure to Turkey. Components must meet minimum criteria for liquidity, as well as foreign ownership restrictions. The securities are weighed by free-float adjusted market capitalisation. Because closely held firms will have a smaller piece of their aggregate market capitalisation floated on public exchanges, the free float adjustment serves to ensure the underlying liquidity of the holdings is superior relative to a pure market capitalisation weighting. The index is reviewed four times a year. As of this writing, there are 25 stocks in the index. The index is heavily top weighted as the top three holdings represent about 35% of its value. The financial sector, the most represented sector in the index, represents 53% of the index’s value, followed by consumer staples (13%) and industrials (12%).
Fondskonstruktion
iShares MSCI Turkey uses physical replication to track its reference index. The fund intends to invest in all of the constituents of the MSCI Turkey Index in the same weightings as in the index. iShares may engage in securities lending within this fund to generate additional revenues for the fund. The lending revenues generated from this activity are split 60/40 between the fund and the lending agent BlackRock, whereby BlackRock covers the costs involved. To protect the fund from a borrower’s default, BlackRock takes collateral greater than the loan value. Collateral levels vary from 102.5% to 112% of the value of securities on loan, depending on the assets provided by the borrower as collateral. Additional counterparty risk mitigation measures include borrower default indemnification. Specifically, BlackRock commits to replace the securities that a borrower would fail to return. The indemnification arrangement is subject to changes, and in some cases without notice. Finally, BackRock limits the amount of assets that can be lent out by this ETF at 50%.Cash received as dividends from the underlying stocks is held in the fund’s income account until it is distributed to fund holders. Distributions are made on a quarterly basis. This dividend treatment can potentially create a drag on returns in upward trending markets as dividends are not reinvested into the fund. In practice this cuts both ways. It could also result in outperformance if the benchmark falls in the interim period.
Gebühren
The fund levies a total expense ratio of 0.74%; the most expensive ETF tracking Turkish equities. Other potential costs associated with holding this fund which are not included in the TER include rebalancing costs, bid-ask spreads and brokerage fees.
Alternativen
As of writing, there are six other ETFs providing equity exposure to Turkey. The largest in terms of total assets under management is the Lyxor ETF DJ Turkey Titans 20. The ETF from Lyxor uses synthetic replication and offers very similar market exposure in terms of sector breakdown and number of holdings. The Lyxor fund levies a total expense ratio of 0.65%.
Investors preferring a more diversified approach to investing in the EMEA region might consider the db x-trackers MSCI EM EMEA ETF. This ETF uses synthetic replication to track an index that is biased towards South Africa (42%), followed by Russia (35%) and Poland (10%). On a sector level, the MSCI EM EMEA Index is biased towards financials (29%) and energy (27%).
