Midcap Bets Help Turkish Stock Manager Go From Worst to First

(Bloomberg) -- Turkey's worst-performing equity fund of last year is leading the pack in 2018 as a strategy of targeting small- and mid-cap companies proves the best way to navigate a dismal first quarter for stocks.

Strateji Portfoy's overweight position in stocks ranking outside the 30 largest traded in Istanbul, along with some technology companies, turned out to be “good picks,” said Burak Cetinceker, a money manager at the firm. The benchmark Turkish index is set for its worst first quarter in three years, failing to sustain last year's 48 percent rally.

“Last year, the stocks outside the Borsa Istanbul 30 Index didn't benefit from the rally as much, so they have stood out well this year,” Cetinceker said. Data from Turkey's Electronic Fund Platform show that Cetinceker runs the best-performing fund focused on Turkish equities in the first quarter, after lagging the field in 2017.

The Borsa Istanbul 30 Index of the most-followed and largest companies has fallen 2.1 percent in the first quarter, while the Borsa Istanbul 100-30 Index -- which holds members of the benchmark gauge outside the top 30 -- has advanced 3.5 percent.

After their best year since 2012, Turkish stocks are struggling in 2018 as investor appetite for riskier assets falters against the backdrop of the country's military operations in Syria and potential early elections. Turkey's growing reliance on foreign capital inflows has made lira assets increasingly sensitive to changes in sentiment.

The main Borsa Istanbul 100 Index is down 1 percent through March 28, its worst first quarter since 2015. The lira has depreciated 5.3 percent so far this year, making it the worst-performing emerging-market currency after the Agentine peso.

Global developments that may increase risk aversion continue to be the biggest risk to Turkish equities, Cetinceker says. Considering external factors together with geopolitical and domestic issues directly affecting Turkey, stocks -- particularly midcaps -- are doing “quite well,” he said.

“Some gains are better than no gains.”

To contact the reporter on this story: Tugce Ozsoy in Istanbul at tozsoy1@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, John Viljoen, Benjamin Harvey

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