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Turkey ETF Surges on Falling Inflation

TUR SPY

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The Turkish ETF has been one of the best performing ETFs in Europe this year. The fund has also had a solid start to the spring as it was up 4.88% in the last week due to falling inflation rate and thus, is now up 12.65% in the year-to-date timeframe. These returns clearly outpaced the broad market funds (as indicated by (SPY - ETF report) by a wide margin (read: A Trio of Top Emerging Market ETFs for 2013).

Solid Turkish Outlook

Beyond this falling inflation rate, investors should note that Turkey has seen a plunging growth rate as well. Now this GDP figure is down to just 2.2% in 2012 from an 8.5% reported figure the year before.

However, it is worth pointing out that the nation expects to improve its growth rate to 4% in 2013, a huge increase, and especially so when compared to other markets in the region. In addition to the falling inflation level, this has been due to flexible monetary policies and a broader recovery in domestic demand (read: Turkey ETF: Still a Strong Play?).

The region also has good medium-term growth prospects and a diverse economy. The nation’s debt-to-GDP ratio stands at 39.9%, much lower than the debt-to-GDP ratio of many developed economies. So the issue of deleveraging is not a matter of concern for the country suggesting that there are a number of policy avenues ahead for the nation (read: Time to Buy Emerging Market ETFs?).

Further, the country already has a low employment rate, solid banking system, government reforms and improved credit rating. Given these solid growth prospects, Turkey could prove to be a great investment market in Europe for years to come.

Turkey ETF in Focus

For investors seeking to play the Turkish markets in exchange-traded form, the pickings are few and far between. Launched in March 2008, the iShares MSCI Turkey Investable Market ETF (TUR - ETF report) is the only option available to investors seeking a pure play exposure in the Turkish equity space.

The product has amassed $938.1 million in its asset base and trades in good volume of more than 300,000 shares a day. With holdings of 97 securities, the fund consists mostly of the largest Turkish-listed stocks with a very small allocation made to small and mid cap securities.

The ETF is heavily concentrated in its top 10 holdings into which it puts 62.26% of the total assets. Hence, the returns of the fund are largely dependent on the performance of the top 10 firms (see more ETFs in the Zacks ETF Center).

In terms of sectors, more than half of the assets go to financials with three giants Turkiye Garanti Bankasi, AK Bank T.A.S. and Turkiye Halk Bankasi making up combined 30% share.

Other than financials, industrials and consumer staples also get double-digit allocation in the fund with a share of 12.56% and 11.95%, respectively. Other sectors include telecommunication, materials, consumer discretionary, energy, health care, utilities and information technology.

The fund sports a distribution yield of 1.35% and charges 60 basis points in fees and expenses. The ETF could also be a good choice for investors seeking international diversification as it has a three year R-Squared value of just 64% with the S&P 500 which implies that it is not very strongly correlated with the U.S. equity market performance (read: Top Performing Country ETF: Turkey in Focus).

Looking ahead, we believe that this solid trend can continue for this underappreciated fund. That is why we currently have a Zacks ETF Rank of 2 or ‘Buy’ on the product, meaning that we are looking for continued outperformance in the rest of 2013 for this Turkey ETF (read: Zacks ETF Rank Guide).

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