EU convergence leads to Turkish delight

With European expansion very much on the political agenda, Amsterdam-based Fortis Investments is drawing distributors’ attention to its Turkish equity fund, presenting what the Belgo-Dutch group claims is “one of the last opportunities offered by the EU convergence”.

Since launch in mid-2005, the Luxembourg-domiciled fund, designed for cross-border distribution, has gathered ?120m, “the bulk of which comes from private and retail banks,” says Mathieu Nègre, fund manager at Fortis. The fund has returned 110 per cent, outperforming the S&P average sector of 92 per cent during the same period.

The management team, which includes Mr Nègre and Eli Koen, of Turkish nationality, employs a bottom-up, research led investment approach, which is “about visiting companies, meeting the management and having an informed view on valuation,” says Mr Nègre. After a liquidity screen has been applied, Turkey’s 300 listed stocks are reduced to an investible universe of 200 companies, of which 60-70 are included in Fortis’ “watch list”. Around 40 per cent of the assets are invested in the financial sector, while construction and consumer stocks represent 13 per cent each of the fund.

Mr Nègre foresees that the value-oriented style fund, stock-picking small and mid-caps, will need to be kept down to an optimal size of ?250m, to avoid liquidity issues.

“Whether Turkey will get the full membership in 10 years or not is not the point,” says Mr Nègre. “What is important is that the country is making the journey.”

Turkey’s fundamentals have vastly improved in the last few years. The last devaluation occurred in 2001 and inflation has since fallen from 70 per cent to less than 8 per cent. EU and IMF pressure also led to creation of an independent central bank.

However, the fund is a high-risk product, with historical market volatility of 40 per cent. The risks of investing in the Turkish market are both external and internal according to Mr Nègre. Rise in global risk aversion as a consequence of negative macro-economic factors and political risks are the major ones. “The outcome of political elections is very critical in emerging markets,” explains Mr Nègre, with a vote slated for for 2007.

Mr Nègre and Mr Koen also manage the Fortis emerging Europe regional fund, which was started in 1998. Currently, 22 per cent of its assets are invested in Turkey.

“Having a regional fund where we have always invested in Turkey gives us a edge over our competitors,” says Mr Nègre.

ET

Nègre: election outcomes are critical