The new investable index: “FINDEX” and an investable Model Portfolio
- Finansinvest Research aims to analyze macro-economic, sectoral and company-specific fundamental data to set out accurate forecasts, create investment ideas and recommendations to achieve superior returns for their institutional and retail clients
- Finansinvest Research Department is comprised of 13 people, including nine equity analysts and one economist, all boasting a deep fundamental knowledge of the companies and industries under their coverage
- Finansinvest Research covers a total of 80 companies, which account for 80% of the BIST’s MCAP and 95% of the BIST100 Index
- The Research Team’s publications include daily, weekly, company, sector and strategy reports
- Daily and weekly reports brief readers on the latest developments in the economy, capital markets and in politics, as well as covering upcoming events, industries and company news
- In-depth company and sector reports focusing on the analysis of specific business models, financial forecasts and valuation
- Periodic reports on the Automotive, Banking, White Goods, Energy, Aviation and Fertilizer sectors
- Quarterly Earnings Analysis of BIST-100 companies, with previews ahead of the reporting season
- Event-specific notes and macro analysis of the political/economic environment in Turkey with associated implications for equity and fixed income markets
- Road show investor presentations and strategy reports
- Primary industries under our coverage include Banking & Insurance, Consumer Durables, Telecommunications, Oil&Gas, Petrochemicals, Energy, Conglomerates, Automotive, Aviation and Real Estate
- Research is disseminated to more than 650 recipients globally on a daily basis
We constructed a new investable equity index for the BIST, entitled the FINDEX index. Our FINDEX, which is closely correlated with the BIST 100 index, is composed of those stocks that satisfy the minimum Mcap and required liquidity conditions. In accordance with our short term view of the stocks in our FINDEX universe, we increased the portfolio weighting of 7 stocks for which we have observed near-term fundamental catalysts, and decreased the weight of 7 stocks which we deem to bear near-term investment risks. We also provide a separate SMALL CAPS List to our customers, to highlight those stocks that could not be included in our benchmark index, but for which we attach a bullish short term view.
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Finansinvest New Model Portfolio and Findex Methodology
In our new Model Portfolio Methodology, we first listed stocks in descending order of their respective market capitalizations. We then select those companies which, between them, account for the uppermost 80% of the overall market capitalization of all of the listed companies.
- We weigh these stocks according to their free float Mcap’s and compose our benchmark index, the Findex, accordingly.
- The 45 companies selected to compose the Findex are classified as “Large Caps”. Of these stocks, we classify stocks with an average daily trading volume of less than TRY6mn as “Illiquid Stocks”. Those stocks not covered by our Equity Research Team are classified as “Not Covered” stocks.
- We classify around 40 companies, which are below the cumulative 80% threshold but which are covered by our Research department, as “Small Caps”.
- Among the “Large Caps”, we select the 7 best stock ideas (OW’s) and increase their portfolio weights (relative to their respective benchmark weights), while also selecting 7 stocks (UW’s) which bear near term investment risks, and lower their portfolio weights accordingly. We keep a “Market Weight” for the other Findex companies in our model portfolio.
- In our model portfolio, the total of the portfolio weights of stocks within our OW list will be 15% higher, while the total weight of stocks in our UW list will be 15% lower than the total of the benchmark weights of the respective stocks.
- As such, we now convert our top pick “list” into a realistic “long-only equity portfolio” with a mandate to outperform an investable BIST benchmark.
- We will now take account of the transaction costs, market impact costs and the dividend payments in a realistic manner when measuring the performance of our Model Portfolio, in order to achieve a fully replicable and investable portfolio.
Quantitative Research & Market Neutral Pair Trades
Our statistical (quantitative) model attempts to identify mispricing, essentially by analyzing pricing behavior. The implicit assumption is that a reversal to the mean would be expected, through the testing of co-integration methodology to test the reversal. Absolute returns are sought by seeking to minimize the correlation with the BIST-100 as much as possible. Stock selections should be ‘realistic and investable’, with long ideas selected strictly from the top 50 stocks and short ideas from the top 30, as trading volumes and liquidity are taken into account. Some of our recommendations may appear to contradict our stand-alone stock recommendations and may not be consistent with the recommendations of the equity research department, as analysts are more focused on fundamental valuations than timing. On the other hand, fundamentals are double checked with the research department in order to avoid a structural shift. Sector neutrality is key (positions within the same sector, holdings vs. subsidiaries etc.) while a stop-loss level of 5% is applied. We run models on a real-time basis and place recommendations when price moves justify the opening or closing of a position.
Model Portfolio Update Report Sample