Rolle im Portfolio
The Lyxor ETF DJ Turkey Titans 20 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 Lyxor 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 DJ Turkey Titans 20 Index correlated 55% with the MSCI EM Asia Index and 50% 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 DJ Turkey Titans Index is not the best proxy for the Turkish economy. The index is heavily biased towards financials (47%), 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 about 7% 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.
The Turkish economy grew by 8.5% last year, placing it amongst the best-performing emerging markets. Construction, manufacturing, financial institutions and private consumption were the main drivers of this growth. However, Turkey remains predominantly concerned about inflation rather than economic growth. Inflation hit 10.4% in March; almost double the Central Bank’s target of 5.5%. As a result, second round inflation has become a real threat as Turks begin to price double-digit inflation into their wage negotiations.
In addition, Turkey’s current-account deficit continued to narrow to $4.2bn in February from $6bn the previous year. Policy tightening at the end of last year by the Central Bank reduced domestic demand in early 2012, slowed down imports and lifted exports. The large current-account deficit--expected to be around 10% of GDP this year--is seen as a key factor curbing foreign investors’ appetite for direct investment in the country. However, it seems that the stock market is catching up with the economy. After underperforming other emerging markets in 2011, despite the strong GDP growth figures, the DJ Turkey Titans 20 equity Index outperformed the MSCI Emerging Markets during Q1 2012; rising 21.1% compared to a 14.1% appreciation.
Although the Central Bank left its interest rates unchanged during its last meeting, higher interest rates could serve to narrow the current-account deficit and simultaneously rein in inflation. Though at the same time, higher interest rates could put pressure on indebted households and companies and as such, the government stated that it does not expect the cost of debt will rise much further; making the “independent” life of the central bank much tougher.
Up to now, the economy has been buoyed by expansion in the financial, retail, and construction sectors, but an economy overly dependant on domestic consumption may prove unsustainable in the long run. Nevertheless, the Turkish economy is expected to continue to grow on the back of a relatively young population, a skilled but relatively inexpensive workforce, well established industries and an improving investment environment supported by macro and political stability as well as a healthy banking sector. The key risk for the economy in the short-term remains the ongoing sovereign debt crisis which could result in capital outflows as investors become more risk averse.
Indexkonstruktion
The Dow Jones Turkey Titans 20 Index provides equity exposure to the 20 largest and most liquid stocks in Turkey. The index’s prospective constituents include all stocks traded on the Istanbul Stock Exchange whereby every share that has not been traded for 10 days during the previous quarter will be excluded. The Dow Jones Turkey Titans 20 Index is a float-adjusted market capitalisation index, capping each constituent’s weight at 10%. The index is reviewed on an annual basis whereas the index component weights are rebalanced quarterly. Each month, the index provider populates a list of the 20 current component stocks and the 20 largest non-component stocks. This list suggests possible additions or deletions for the next review. As of writing, the index is biased towards the financial sector (47% of the index’s value), followed by consumer goods (14%) and telecommunications shares (13%). In addition, the index is heavily top weighted as the top 5 holdings represent about 40% of its value.
Fondskonstruktion
The Lyxor ETF DJ Turkey Titans uses the synthetic replication to track the DJ Turkey Titans 20 index. The fund uses unfunded swaps. Specifically, Lyxor holds a basket of European blue chip shares and enters a swap agreement with a counterparty (always Societe Generale). The counterparty contracts to deliver the performance of the DJ Turkey Titan 20 Index in exchange for the performance of the fund’s holdings. According to UCITS III regulations, individual counterparty risk exposure is limited to 10% of the fund’s NAV at any point in time. According to our research, the OTC swap is not collateralised, which effectively exposes the investor to a loss of up to 10% of the NAV if the swap counterparty defaults. However, Lyxor is now committed to target zero swap exposure on a daily basis and is also considering the virtues of adopting an overcollateralised structure. Lyxor does not currently engage in securities lending, which helps to minimise overall counterparty risk. Dividends are accumulated throughout the year and held in a ‘cash bucket’ until they are distributed to fund holders once a year in September. This dividend treatment can potentially create a drag on returns in upward trending markets because dividends are not reinvested into the fund. In practice this cuts both ways. It could also result in outperformance if the benchmark falls.
Gebühren
The fund levies a total expense ratio of 0.65%. This lies in the middle of the range of ETFs tracking Turkish equities.
Alternativen
As of writing, there are five other ETFs providing equity exposure to Turkey. The largest in terms of total assets under management is the iShares MSCI Turkey (IE) ETF. The ETF from iShares uses full replication and offers very similar market exposure in terms of sector breakdown and number of holdings. The iShares fund levies a total expense ratio of 0.74%.
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 (37%) and Poland (8%). Turkey represents 7% of this index’s value. On a sector level, the MSCI EM EMEA Index is biased towards energy (28%) and financials (26%).
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