iShares MSCI Turkey ETF: Analyst Report

By ETFalpha
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Name: iShares MSCI Turkey ETF
Symbol: TUR

Hagia Sophia: Turkey

Role in Portfolio

This exchange traded fund (ETF) provides equity exposure to Turkey which is the largest economy in emerging Europe. The product offers risky single country emerging market equity exposure and should be deployed as tactical tool within a diversified portfolio. As an example the iShares MSCI Emerging Markets ETF (EEM) allocates just below 2% towards the country while the iShares MSCI Emerging Markets EMEA ETF (EEME) approximately 11%. Therefore, before considering an investment, investors should review their portfolio for existing exposure to the Turkish stock market through their existing holdings in order to avoid unintentionally over weighting this region.

Generally investors should be aware that the MSCI Turkey Index is not a good proxy of the Turkish economy. The index is heavily biased towards financials (about 46%), whereas the sector represents less than 5% of the country’s GDP.

The TUR ETF provides diversification benefits when added to an equity strategy as it offers the following correlations vs: EEM (0.7), EEME (0.69) and SPY (0.47).

TUR Correlation Matrix (Data: 31 Jan 2012 – 30 Nov 2014)

The TUR ETF should be used as a satellite position within a global world or a global emerging markets or a more local EM strategy strategy. Investors should always check the allocation of the country within their underlying benchmark in order to play it on a tactical basis.

Economy – Fundamental Insight

As of 2012, the main trading partners of Turkey are Germany, Russia and Iran. Turkey has taken advantage of a customs union with the European Union, signed in 1995, to increase industrial production for exports, while benefiting from EU-origin foreign investment into the country.

Turkey is also a source of foreign direct investment in central and eastern Europe and the CIS, with more than $1.5 billion invested. 32% has been invested in Russia, primarily in the natural resources and construction sector, and 46% in Turkey’s Black Sea neighbours, Bulgaria and Romania. Turkish companies also have sizable FDI stocks in Poland, at about $100 million.

Turkey Export Treemap by Product (2012) from Harvard Atlas of Economic Complexity

Turkey is an oil and natural gas producer, but the level of production by the state-owned TPAO isn’t large enough to make the country self-sufficient, which makes Turkey a net importer of both oil and gas. However, the recent discovery of new oil and natural gas fields in the country, particularly off the Black Sea coast of northern Anatolia; as well as in Eastern Thrace, the Gulf of İskenderun and in the provinces of the Southeastern Anatolia Region near the borders with Syria and Iraq; will help Turkey to reach a higher degree of self-sufficiency in energy production.

In 2010, 12 Turkish companies were listed in the Forbes Global 2000 list – an annual ranking of the top 2000 public companies in the world by Forbes magazine. The companies were:

Index/ETF Construction

The iShares MSCI Turkey ETF seeks to track the investment results of a broad-based index composed of Turkish equities. The underlying index is the MSCI Turkey Investable Market Index (index ticker: MIMUTURN). The TUR ETF was almost $470m in size as of 12-Dec-2014. The portfolio is pretty well diversified with 83 holdings as of 11-Dec-2014.

The top financial holding of the TUR ETF constitutes around 12% of the portfolio while the top 5 allocations account for about 38%.

TUR Top 5

On the sector level the financials account for almost 50% of the ETF whilst the top 3 sectors: finacials, industrials and consumer staples constitute almost 73% of the portfolio.

Technical Charts

TUR ETF 3Y Absolute Performance Chart – Courtesy of StockCharts (12-Dec-2014)

TUR ETF 3Y Relative Performance Chart (EEM) – Courtesy of StockCharts (12-Dec-2014)

Fees

This fund levies a 0.61% expense ratio.

Alternatives

For exposure to Turkey there are no alternative ETFs listed in the U.S.

Important Information Related to this Article

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Source: iShares, Wikipedia, Morningstar

ETFs: TUR