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Top Rated Funds Hit by Turkey Slide

These three funds have more than 5% of their portfolio invested in Turkish stocks - and they have all lost money year to date

Emma Wall 13 August, 2018 | 12:33AM

Turkey President Erdogan US sanctions emerging markets top rated funds developing economies

The Turkish lira has recouped some of its losses after falling to a record low on Asian markets at the start of the week, as the nation’s central bank moved in to inject "all the liquidity the banks need". But whether it will be enough to stem contagion fears remains to be seen.

Finance Minister Beart Albayrak announced an action plan to shore up the economy, while the bank said it would be cutting lira and foreign currency reserve requirements and pledged to closely monitor markets for further actions if needed.

The Turkish lira plunged to record lows on Monday, following Friday's plunge of more than 20% against the dollar. The lira has lost almost 50% of its value since the beginning of the year, amid fears about the strength of the economy and sanctions from the US following the detention of American pastor Andrew Brunson. US tariffs of 50% on steel, up from 25%, also went into effect at 4am this morning.

President Recep Tayyip Erdogan has blamed the fall in currency on a plot to oust him, likening it to the 2016 coup attempt.

"Efforts to unsettle markets are unacceptable. Seizing bank deposits is not under discussion," Erdogan's economic adviser Hatice Karahan tweeted Monday, quoting the President.

The Turkish stock market Borsa Istanbul 100 is down 21% year to date.

3 Top Rated Funds Invested in Turkey

Parvest, Manulife and HSBC all offer open-end funds invested solely in Turkish equities – and declare so in the name. Investors in these funds will not be surprised by their exposure to the troubled market. But what about emerging market or Eastern Europe funds with broader exposure? There are more than 100 funds with more than 5% of their portfolio invested in Turkish stocks, but only a few of them are popular with retail investors – and have earned either an analyst rating or top performer star rating.

BlackRock Emerging Europe earns a Bronze Rating from Morningstar analysts – and a four star performance rating. It is down 8% year to date, although has delivered annualised returns of 14% over the past three years.

Analyst Lena Tsymbaluk says fund manager Sam Vecht is one of the best in the sector, and has a high opinion of Vecht’s knowledge of the Emerging European market and his ability to consistently apply his well-defined process.

The process blends top-down and bottom-up research. With the input from the team’s macro economists Gordon Fraser and Denis Kalugin, Sam Vecht decides on the fund’s country allocation at weekly meetings where they establish a country’s relative attractiveness based on its macro factors. Once the general country weights are decided, the team identifies stocks with growth opportunities, with an emphasis on cash flow growth, as they believe this is ultimately the driver of share prices over time. Some 6.6% of the portfolio is allocated to Turkish stocks.

The UK listed JP Morgan Emerging Europe Equity was merged into its European listed counterpart in April, earning it a downgrade to a Neutral. The European fund has a Bronze Rating and 15% of its portfolio is invested in Turkish equities.

The portfolio is built from the bottom up using both quantitative and qualitative criteria, filtering stocks in the MSCI Emerging Europe universe. Their aim is to find companies with the least dependence on externally driven risks, such as currency moves or the oil price. As a result, the core of the portfolio is held in longer-term investments with at least a three-year horizon.

The five-star Schroder Emerging Europe fund, is among the best performers in the peer group. Down 6.4% year to date, over the longer term it boasts an impressive 19% three-year annualised return. It has 8.5% of the portfolio allocated to Turkish equities.

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BGF Emerging Europe A2122.47 EUR2.45
JPM Emerging Europe Equity C (acc) EUR23.10 EUR2.50
Schroder ISF Emerging Europe A Acc EUR37.58 EUR1.81

About Author

Emma Wall  is former Senior International Editor for Morningstar

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