Turkey ETF Looks Delicious

by on November 9, 2011 | ETFs Mentioned:

Financial markets all over the globe have taken investors for a wild ride this year and many are still dizzy from all of the wild up and down swings that seem to be abundant across virtually every asset class. A sluggish economic recovery at home coupled with ongoing debt woes in the financially fragile Euro zone have all weighted down on investors’ confidence. Many have fled from emerging markets entirely, deeming them far too risky given the cloud of uncertainty that is plaguing even the most prosperous developed markets and concerns over slowing growth and inflationary pressures in developing economies. However, Turkey, which is often times overlooked when considering international investments, may offer investors a “bright spot” in the currently gloomy global economic environment.

Turkey, classified as an emerging market economy by the IMF, has been flying under the radar for many investors largely because nations like Brazil and China have been hogging the spotlight [see Forget BRIC ETFs: Look To VISTA Nations For Better Opportunities]. Turkey is one of the world’s newly industrialized countries and home to a fiscally conservative financial system; in fact, during the most recent financial crisis, not a single Turkish required “bailout” assistance from the government. Turkey’s GDP has grown by an average of 4.8% annually since 2002, and in 2010 the country had output of $1.1 trillion, making it the 16th largest economy in the world. The World Bank classifies Turkey as an upper-middle income country in terms of GDP per capita and the nation holds an important spot in the G-20 as well as the OECD.

The Appeal Of Turkey

Investing in Turkey may be appealing for several reasons: first and foremost, its economy is dominated by service industries, which separates it from many other emerging market countries which are dependent on the production and export of commodities. Turkey is also home to a well diversified industrial sector bolstered by a growing automotive industry, booming transport sector, as well as a leading shipbuilding and arms manufacturer.

Its tourism and finance sectors are also world renowned, and currently the Turkish banking sector is among the strongest and fastest growing in Europe, the Middle East, and Central Asia. The nation’s central location is also key to its economic prosperity; Turkey is an important trade corridor and energy terminal that connects to Europe, Eurasia, the Middle East, and North Africa. Ongoing investments to improve infrastructure, health care, and education in the country are helping pave the road to prosperity for this often times overlooked emerging market [see Emerging Market ETF Investing: Beyond The BRIC].

Investors who wish to establish exposure to the Turkish economy, at this time, unfortunately don’t have many choices in the exchange-traded universe [see our Free Country ETF Exposure Tool]. The only “pure play” Turkey ETF is offered by iShares, tracking the MSCI Turkey Investable Market Index. The MSCI Turkey Index Fund (TUR) holds a diverse portfolio of 100 stocks, although the top ten holdings account for almost two thirds of total assets. TUR is well diversified across companies of all sizes, offering exposure to large, mid, small, and even micro cap equities [see TUR Holdings].

From a sector breakdown perspective, TUR is dominated by financial stocks, which account for roughly half of the entire portfolio. Exposure to consumer staples, industrials, and telecom companies is also included, which allows for valuable exposure across various industries that are favorably positioned to grow as the nations positive demographic and economic trends continue. Investors should also note that TUR had a 30-Day SEC Yield (as of 10/31/2011) of 2.33%, increasing the appeal to investors who value a stream of current income payments as a means of cushioning volatility and enhancing bottom-line returns over the long haul.

Disclosure: No positions at time of writing.