ZyFin launches UCITS Turkish sovereign bond ETF

Jun 10th, 2016 | By | Category: Fixed Income

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Singapore-headquartered asset manager ZyFin has launched the first UCITS exchange-traded fund to offer exposure to the Turkish sovereign bond market. The LAM Alternatif ZyFin Turkey Sovereign Bond UCITS ETF (LSE: TRKY) has been listed on the London and Frankfurt stock exchanges and tracks the proprietary ZyFin Turkey Sovereign Bond Laddered Index. The ETF will likely appeal to longer-term investors searching for growth opportunities in emerging market debt.

Zyfin launch first European-listed Turkish bond ETF

The LAM Alternatif Zyfin Turkey Sovereign Bond UCITS ETF (TRKY) tracks the performance of six fixed-rate, local currency-denominated government bonds with either two, five or ten years to maturity.

The fund has been launched in conjunction with ABank, a subsidiary of the Commercial Bank of Qatar, who will provide local market expertise on geopolitical and macroeconomic matters.

Devised by ZyFin’s in-house research team, the Zyfin Turkey Sovereign Bond Laddered Index tracks the the combined performance of six fixed-rate, local currency-denominated government bonds with two bonds each picked from maturity brackets of two-, five- and ten-years.

As of 1 June 2016 the index, which is re-balanced on a quarterly schedule, has an average modified duration of 3.7 years, a weighted average yield of 9.5% and is up 11.2% from the start of the year. All income generated from the bond holdings is automatically reinvested into the ETF during quarterly re-balances.

The fund is the third ETF to be rolled out by ZyFin in the past seven months and follows the launch of two groundbreaking Indian bond ETFs offering exposure to sovereign bonds and state-owned enterprises.

Sanjay Sachdev, Executive Chairman of ZyFin, told ETF Strategy: “Our strategy is two-fold: to deliver value opportunities and to provide access to emerging markets not previously available to mainstream investors. In our opinion, the [Turkey] ETF is best suited to investors with a long-term investment horizon and we are anticipating significant interest from private banks and family offices.”

Müge Öner, ABank Acting CEO, commented: “I strongly believe that the newly established Alternatif ZyFin Turkey Sovereign Bond ETF will be an important instrument for international investors who would like to focus on the Turkish market.  At ABank, we are glad to be the preferred counterparty and broker of this ETF in Turkey. With such partnerships, we will continue taking strong steps to be a key player both in Turkish banking sector and in the region, thanks to the support of our major shareholder The Commercial Bank.”

“With research insights from ABank and backed by our expertise in asset management we have structured this attractive investment solution for investors who wish to participate in the growth momentum that we believe will unfold in Turkey,” added Sachdev.

Turkey has the 18th largest nominal GDP and 17th largest GDP by purchasing power parity. Its economy is well diversified across a range of sectors, a structure that has provided the economy with a degree of resilience from external shocks in recent years.

According to the OECD, GDP growth is projected to be around 4% per annum for the remainder of the year as well as 2017. The core rate of inflation (which excludes volatile items such as food, gold and energy items) fell from 9.4% in April to 8.7% in May, suggesting greater price stability.

Party political volatility has raised scrutiny from investors in recent years. Over the past twelve months, Turkey has held two general elections, re-engaged conflict with the minority Kurdish rebels, and suffered political infighting which led to the forced resignation of Prime Minister Ahmet Davutoglu by President Recep Erdogan. The recent acute crisis of leadership that developed in May seems to have abated for now, though. Davutoglu was replaced by Binali Yildirim, a respected technocrat who is well known for his work in boosting Turkey’s infrastructure – the lira rebounded positively on the announcement.

Commenting on the riskiness of the ETF’s underlying holdings, Sachdev said to ETF Strategy: “Investors understand that there are inherent investment risks with Turkey – particularly currency risk, inflation risk and geopolitical instability. But those risks are fairly rewarded with return in the form of a yield of circa 10%.

“Investors should not ignore Turkey. Its 80 million population, alignment with the EU and strategic advantage as a bridge between Europe and the East bodes well for the long-term development of its economy.”

The ETF is available on the LSE in US dollar and pound sterling share classes, and in euros on Frankfurt. It has total expense ratio is 0.89%.

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