A Tehran-based investment firm says it plans to launch Iran’s first exchange-traded fund tracking a stock market index, ahead of the possible lifting of international sanctions on the country, adding to the small but growing list of ETFs in Iran.
Turquoise Partners Group secured regulatory approvals for the Turquoise TSE 30 Iran Index ETF, the company told Reuters on Monday via email.
ETFs are portfolios of stocks that track a market - Turquoise’s product will mimic the Tehran Stock Exchange’s TSE 30 index of the 30 biggest blue chips. Since they involve low management costs and trade on exchanges, ETFs can give foreign investors a cheap, convenient route into frontier markets.
ETFs are quite new in Iran. The oldest of them started trading around 15 months ago. The rest haven’t reached their first anniversary. But they are growing in number. Their rise has come after the regulatory revolution that started six years ago.
The best performer, Sepehr Andisheh Novin beat the Tehran Stock Exchange by over 30 percent, though the fund invests in debt securities as well, greatly boosting its performance in the current bear market. The fund, managed by Novin Investment Bank, netted investors a 10 percent return for the period. The TEDPIX, TSE’s main index has slipped 20.5 percent in the past six months.
The sanctions, imposed over Iran’s nuclear energy program, have blocked most flows of foreign money into Iran. This has made the Tehran bourse, with a capitalization of $84.4 billion at the market exchange rate, one of the last big, unexploited opportunities for global portfolio investors.
While foreigners can invest in Iranian stocks, international sanctions hinder the process of transferring money and deter institutional funds, according to Charles Robertson, the London-based chief economist at Renaissance Capital Ltd.
Iran reached an interim deal in late 2013 with global powers, yet in November negotiations were extended to July after both sides failed to come to a comprehensive agreement.
“Once sanctions on Iran are lifted -- which might begin as early as 2015 -- we could see a flood of money pour into this market,” Robertson said by email to Bloomberg. “ETFs are an increasingly popular means of accessing markets, but with the inherent constraint, the winning companies or sectors do not get the attention that an active fund manager would focus on.”
The sanctions could be lifted, allowing fund inflows to resume, if Tehran reaches a nuclear deal in talks with the P5+1 – the US, Britain, France, Russia, China and Germany – by a mid-2015.
Money Managers
Turquoise, founded in 2005, says it has about $70 million of foreign money and $130 million of local funds under management, according to Rueters.
Firouzeh Asia Brokerage, an arm of Turquoise, has obtained a license for the ETF from Iranian regulators and will list the fund on the country’s main market, Turquoise said on Monday.
Fund-raising for the ETF is to start on Tuesday and last two weeks; Turquoise expects to raise a minimum seed investment of $3 million and to see the size grow over time because the fund is an open-ended product, Reuters reported.
Although foreigners can theoretically invest immediately, it expects the initial money to be raised from local investors. Novin Investment Bank will act as market-maker for the ETF, buying and selling stocks so it can track the index accurately.
Rough Seas
The sanctions, domestic political and policy shifts, and speculative trading have made the Iranian market very volatile. The market’s total return index soared about seven-fold in the four years to January 2014 but has since tumbled 27 percent as authorities have tightened monetary and fiscal policy.
The Tehran Stock Exchange lost 21 percent in 2014, the first yearly decline since 2008. Stocks extended the drop this year, retreating 5.6 percent in January as Republicans and some Democrats in Congress seek new economic and diplomatic penalties on Iran, a move that could quash any nuclear deal. The index was little changed today at 65,127.8, TSE data show.
High Hopes
Penalties on crude exports, the Islamic Republic’s main export earner, were eased in 2013 in exchange for caps on its nuclear energy work. Brent crude slumped 48 percent last year, the most since 2008, as growing US production added to a global supply glut.
Turquoise expects foreign inflows to accelerate amid bets President Hassan Rouhani will bring an end to sanctions over the nation’s nuclear program that have throttled its economy and curbed foreign investment.
“Our aim is to create different types of investment instruments for a variety of investor appetites,” Turquoise Chief Executive Officer Ramin Rabiee said to Bloomberg in the email from Tehran. “There has always been a demand from local and foreign investors to trade the Iranian market index, which we tried to address with this fund.”
