Analyse: iShares MSCI Turkey UCITS ETF

ETF für die taktische Wette auf die Erholung türkischer Aktien. Der MSCI Turkey ist mit 25 Unternehmen ein konzentrierter Index mit Schwerpunkt Finanztitel.

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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 52% with the MSCI EM Asia Index and 47% 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 (49%), 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.

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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.

However, Turkey now finds itself at a crossroads, with a bribery and corruption investigation testing the government of Prime Minister Recep Tayyip Erdogan. The scandal questions the independence of the country’s police and the judiciary. Many domestic and international companies have put all important commercial and investment decisions on hold, thereby threatening the economic expansion.

On top of the political problems, the economic outlook has also turned gloomier. Inflation hovers above 7% and the Turkish Lira has depreciated 17% and 21% versus the US-Dollar and the Euro in 2013. It is estimated that corporations had to write-off $35bn in foreign-exchange losses as a result. In addition, the current account deficit reached 7% of GDP, while private savings, foreign investments and exports are shrinking. The impressive growth rates of 9% in 2010 and 2011 were mainly driven by debt-fuelled private consumption and property investments through highly leveraged construction firms. This was not a sustainable growth path. Foreign-denominated corporate debt has doubled to $170bn since 2009, representing 20% of the country’s GDP.

The European Bank of Reconstruction and Development (EBRD) cut its growth forecast for Turkey, citing the political crisis and the tighter US monetary policy as reasons. The EBRD lowered its GDP forecast for 2014 from 3.6% to 3.3% vs. an expected 3.7% in 2013. The government expects GDP to grow by 4% in 2014, while most analysts pencil in just half of that at 2%.

Despite a depreciating lira, a ballooning current account deficit, and high inflation (e.g. 7.4% in December) the Turkish Central Bank refused to hike interest rates for most part of last year. At its January meeting, it left rates unchanged at 7.75%, though it said it would allow money market interest rates to increase to 9% on exceptional days. This has been seen as a rate hike through the back door. However, the majority view is that the rate remains too low and should be around 11%. 

An additional problem has arisen by the fact that the Central Bank was a keen user of a technique known as reserve-option mechanism, which allows it to keep part of their reserve requirements in foreign currency. When foreign money flowed into the market, this helped to relieve upwards pressure on the Lira. However, this strategy is not well suited for the current environment. In fact, the bank has been selling a minimum of $100 million a day since last summer, and has renewed this commitment until at least the end of January.

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.  

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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 49% of the index’s value, followed by consumer staples (15%) and industrials (13%).

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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.

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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.

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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 (41%), followed by Russia (34%) and Poland (9%). On a sector level, the MSCI EM EMEA Index is biased towards financials (30%) and energy (26%).

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Über den Autor

Gordon Rose, CIIA, CAIA,

Gordon Rose, CIIA, CAIA,  war von 2011 bis 2014 Fondsanalyst bei Morningstar.