In the first article of October, referring to the weather conditions, I mentioned that the weather was sunny for domestic markets, but turned gray for overseas markets.
As we enter November, we see the weather turning gray in local assets as well. In this context, let’s analyze both general markets and fund performances. Overseas markets completed another month focusing on U.S. inflation and interest rate hikes.
Strong economic indicators and a robust job market, in the context of combating inflation, continue to keep interest rate hikes on the agenda. In this context, we observe that the rise of the U.S. 10-year bond yields to 5% is putting pressure on overseas indices, including Nasdaq and S&P500.
The escalation of the Israel-Palestine tensions in the Middle East in October, turning into conflict, was decisive for all assets, particularly local ones. We witnessed a rapid rise in precious metals, which stand out with a safe haven perception during times of conflict. Looking at the price movement of an ounce of gold, we see it ranging from $1811 to $2000 within the month.
This led to gold being the highlighted asset of the month. At Borsa Istanbul, we can say that risk appetite was suppressed throughout the month, and we didn’t see sufficient volume and appetite on the rising side. It’s possible to say that substantial public offerings also played a role here. We observe a gradual upward trend in exchange rates and bond yields.
In light of all these developments, when looking at fund performance, we see that gold funds parallel the movement of gold and generate returns for investors, alongside positive returns in Eurobond and Foreign Currency Lease Certificates funds due to the decline in the country’s risk premium. When examining the returns of gold funds, we see a 10% monthly premium parallel to the increase in the price of a gram of gold.
In these funds, we see the highest return at 11.7% and the lowest return at 9.7%. Although silver funds did not experience as rapid an increase as gold, they see an average return of 4% in the positive completion of this month. In Eurobond funds, an average return of 3.2% was achieved due to the declining country risk premium and increasing exchange rates.
It’s worth noting that this is very parallel to the increase in the exchange rate and a significant part of the return is due to the rise in the exchange rate. Looking ahead, positive news flow from foreign investors could lower the CDS, making Eurobond/Foreign Currency Lease Certificate funds prominent in the upcoming period.
We should note that Borsa Istanbul’s negative performance in October affected the funds as well. While the average return of domestic equity funds was -8.2%, the best-performing equity fund achieved 4.4% and the lowest-performing fund was at -16%.
Considering the monthly increase in the BIST100 index at -9.8%, it’s possible to see how valuable the funds are for stock market investments. Within 91 equity funds, we see that only 28 have returns below the BIST100, and these funds are related to BIST30 and Exporter Companies themes.
Negative trends continue in foreign-content funds. Due to rising oil prices, we can only say there was a monthly positive return in oil/commodity-related funds. Apart from that, funds related to themes like health, clean energy, technology, and sustainability seem to have failed to satisfy their investors this month.
At this point, the importance and benefits of diversifying themes in each asset class become prominent. When evaluating investor preferences, we can say that the upward trend in gold returns influenced investor participation in the same parallel.
Apart from gold, funds with increased investor interest predominantly consist of equity-weighted funds. In equities, we see the prominent themes are outside BIST100 and technology. Considering that constant returns in these funds may not be possible, it might be beneficial to add different equity contents (BIST30-Dividend-Banks-Exporter Companies, etc.) and distribute the risk even within the same asset class.
We expect high volatility both domestically and abroad in the coming period. In this context, it would be beneficial to create a portfolio through a balanced distribution across multiple asset classes instead of relying on a single asset or fund. This can be done based on the reports of portfolio management companies or, according to your risk preference, by evaluating your savings through multi-asset-containing balanced/variable/fund basket funds. I wish you a beautiful November.