Top Turkish Equity Fund Bets on Banks to Be Among 2021 Stars

(Bloomberg) -- Turkey’s top-performing equity fund is buying banks and other large industrial companies, anticipating that they will benefit the most from an economic upswing in 2021.

This shift is happening at the cost of the smaller companies so beloved by Turkey’s legion of mom and pop investors and which have helped Tacirler Portfoy’s $80 million equity intensive fund outpace its peers, said General Manager Okan Alpay. The fund has gained 102% in 2020 as of Dec. 18, the most among those focused on domestic stocks, according to the national fund distribution platform, known as Tefas.

Valuations of Turkish lenders have become “meaningfully” cheap compared with regional peers and the broader local market, Alpay said in an interview in Istanbul. The overhaul of the country’s economic management and a return to more conventional central-bank policy, could trigger gains next year, he said.

Until early November, the shares of Turkey’s biggest companies, including its banks, bore the brunt of a foreign selloff as the lira tumbled in the face of investor concerns about monetary policies that prioritized economic growth above all else. That began to change as President Recep Tayyip Erdogan signaled his support for an investor-friendly approach to running the economy.

The replacement of Turkey’s treasury and finance minister and its central bank head have spurred gains. In the past six weeks, the Borsa Istanbul Banks Index is up 23%, while the Borsa Istanbul 30 Index of the most-widely owned and largest companies has gained 17%. That compares with the 7% rise in the MSCI Emerging Markets Index. If the commitment to orthodox policy proves sustained, banks could find a place among the longer-term holdings in the fund, Alpay said.

Tacirler has started to invest in stocks worst-hit by the pandemic, including airlines and tourism on bets that Covid-19 headlines will start to wane.

Turkish stocks have the potential to gain more than 100% in dollar terms over “a few years” as the country’s revised economic policy combines with increased flows toward emerging markets, said Semih Kara, Tacirler Portfoy’s chief portfolio manager. Tacirler has been speaking to potential foreign equity investors, and “there is a good level of interest from them,” he said.

Foreign Investors

That suggestion is backed by some overseas money managers. “Turkish stocks possess the rare combination of high growth prospects and attractive current valuations,” said Change Global Investment Managing Director Thea Jamison, in Camas, Washington. “As long as the authorities stay within their lane, we believe investors will be well rewarded to take on Turkish risk.”

Bank Julius Baer closed most of their short recommendations in Turkish assets in mid-November, said Mathieu Racheter, the bank’s head of equity strategy. “Despite the recent rally, we still see value in Turkish banks stocks relative to other EM banks stocks,” he said.

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