Will The Downturn Continue For The Turkey ETF?

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June 10, 2013 12:35pm NYSE:TUR

turkeyFor much of 2013, the iShares MSCI Investible Market Index ETF (NYSEARCA:TUR) has been a bright spot in the broad European ETF world. The fund saw some significant volatility to start the year, but it rebounded nicely after February

, leading the ETF to new heights.

However, the wheels have begun to fall off the Turkish growth story as of late and the fund has begun to tumble back towards Earth. In fact, TUR has lost over 7% in the past five days, suggesting that an incredible amount of pain has been inflicting on those who have invested in the nation.

What Happened?

The recent confusion about the Fed’s exit strategy and the timing of any wind down in their bond buying program has had big consequences across the globe. Many stock markets have sold off on this news, and Turkey’s was no exception (see Turkey ETF: Still a Strong Play?).

It also didn’t help that some analysts believe that Turkish securities will be among the most impacted by an eventual Fed tightening. According to Barron’s, Barclays recently released a report which said that investors “who are concerned about the reversal of Fed easing should consider short positions in assets with high elasticities to the Fed and expensive valuations versus history. Turkish equities and US defensives appear vulnerable.”

This could be especially true when investors consider the portfolio makeup of TUR and how heavily concentrated the fund is in financials. Just over half the fund is in the important sector– including all of the top five holdings– so clearly TUR will be heavily impacted by any turbulence in the banking space.

It also doesn’t help that the standard deviation of TUR is quite high at just under 29.5%, while the beta (against the S&P 500) is approaching 1.45. These figures suggest that TUR is quite volatile so any cracks in their trend line could have an extremely adverse impact on the ETF.

Other Factors to Consider

This news for Turkey comes at a very unfortunate time, as the nation just cut rates and experienced a credit upgrade. Both of these factors made Turkey a more appealing destination for investment, and pushed many to think that the nation was back on track.

However, with the latest report from Barclays and ongoing speculation over the Fed’s program, some worry over Turkey’s financial heavy market could be warranted. So while we still like TUR for the long term—the fund has a Zacks ETF Rank #2 (Buy)– the shorter term picture could be quite rocky, suggesting that investors may want to consider other options in the broad European space over Turkey at this time.

This article is brought to you courtesy of Eric Dutram From Zacks.

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