IST30: Exchange-traded fund

Composition 

IST30 is the first exchange-traded fund (ETF) based on the BIST 30 National Index (BIST 30) in Turkey. An ETF is an investment vehicle that combines key features of traditional mutual funds and individual stocks. ETFs represent a variety of securities that track specific indexes, like index mutual funds, but they can be traded on the same trading day. IST30 makes it easy to invest in equities on the BIST 30, which is made up of the largest 30 companies on the Borsa Istanbul by market capitalisation. Buying and selling at the market price, investors can save time and costs, since IST30 can be traded on the exchange just like a stock and can be bought and sold through any licensed bank or brokerage house with access to the Borsa Istanbul.

ETFs have become a global phenomenon. Likewise, they have been attracting investors in the Turkish market. Finans Asset Management launched the first ETF in Turkey in January 2005 with the Dow Jones Istanbul 20 ETF. Since then, Finans Asset Management has launched seven more ETFs covering the international price of gold, the international price of silver, Turkish equities, Turkish government fixed income and exposure to dollar/lira parity. Finansbank is the fund issuer for the ETFs, while Finans Asset Management is the fund manager.

Trading

Investors’ needs and expectations have changed following the turmoil in global markets in recent years. Investors now seek financial products that offer flexibility, transparency, ease of transaction, cost efficiency and safety. Changing investor needs have already started to shape the future of financial products, and ETFs are expected to become a major part of this mix in Turkey. In addition to having lower management fees, ETFs offer several other advantages over traditional mutual funds.

First, IST30 offers diversification, as it consists of the largest and most liquid companies in Turkey. It allows investors to access the leading 30 public companies on the BIST 30 with a single transaction. Thus, investors can reduce risks and increase potential yields. The IST30 also eliminates any liquidity concerns, as liquidity is continually provided through trading on the stock exchange. Moreover, it is easy to buy or sell shares during trading hours. This intra-day trading gives investors the power to react swiftly to market changes.

Investors can use the flexibility of IST30 to hedge long positions, and options and futures to offset the downside risks in their portfolio. IST30 shares are also transacted with a tighter spread than stocks, creating significant trade advantages as compared to buying and selling individual equity listings. Regarding dividends from the underlying securities, these are reinvested into the ETF.

In terms of sector representation in the IST30, the banking industry commands the highest weighting, followed by conglomerates and the telecoms sector. Garanti Bank has the highest weight of any single stock, followed by Halkbank and Akbank. At the end of 2012, the fund’s assets under management stood at TL5.32m (€2.3m).

Performance

Since the fund was set up in April 2009, it has yielded a return of 203.77%. Over the same period, the value of the BIST 30 index increased by 191.87%. In 2012 the fund outperformed the BIST 30 with a 60.96% return, compared to 58.40% for the index. Year-to-date March 19, 2013, the IST30 yielded 0.23% versus 0.38% for the BIST 30.

Of the stocks included in the IST30 ETF, the ones that have shown the greatest movements in the first months of 2013 have been the steel company Kardemir (+22.56%) and Ihlas Holding (-33.85%).

However, Turkish Airlines contributed the most to the movement in the ETF due to the combination of its weight (3.55%) and its performance (+18.72%). In general, given their weights and movements, news regarding the banking sector and capital markets board measures has been the most dominant factor in determining the fund’s real performance.