Neo Portföy's Equity Desk: The Case for Active Management in Turkey's Most Difficult Market

Burak Çelik, 38, is head of equities at Neo Portföy Yönetimi A.Ş., the Istanbul-based asset manager licensed by Turkey's Capital Markets Board. He joined the firm in late 2018, shortly before the launch of the NEO Hisse Senedi Fonu, and has managed the fund since its inception in April 2019. His approach is built on fundamental analysis of the traditional kind: company-level research, concentrated positions, and long holding periods. In an industry where the prevailing trend is toward benchmark-hugging strategies and quantitative overlays, the NEO fund's process is notable for how little of that it employs. Over the five years since launch, the fund has delivered a cumulative return in nominal Turkish lira terms of approximately 847%, against the BIST100 total return index return of 614% over the same period. On a three-year basis, the information ratio is 0.73. The Sharpe ratio, adjusted for the Turkish risk-free rate, is 1.21, against a benchmark Sharpe of 0.89. These are not perfect numbers. But they are consistent, and the portfolio data, disclosed quarterly through KAP filings, confirms a process of unusual transparency.

Why the BIST100 Is More Beatable Than It Looks

The global case for passive investing rests on a well-evidenced observation: that in most developed markets, most active managers fail to outperform their benchmark after fees over a sufficiently long horizon. This is broadly true and investors are right to take it seriously. It is also an observation that applies less cleanly to the BIST100 than its proponents typically acknowledge.

The BIST100 is a capitalisation-weighted index. Its ten largest constituents account for approximately 55% of total index weight. Those ten names are, with limited variation year to year, the same group: the major Turkish commercial banks, the large holding companies controlling Turkey's industrial conglomerates, a handful of telecoms and energy companies. Koç Holding, Sabancı Holding, Garanti BBVA, Akbank, İş Bankası, Ereğli Demir Çelik, Türk Telekom, BIM. These are not bad businesses. Several are among the best-governed companies in Turkey. But their share prices move, to a significant degree, in response to macroeconomic inputs (interest rate decisions, currency movements, regulatory changes, credit conditions) rather than to company-specific fundamental developments. When the Central Bank cuts rates, Turkish bank shares rally. When the lira weakens sharply, export-oriented holdings appreciate. The macro signal drowns the fundamental signal.

This creates an opportunity for an equity manager willing to hold a portfolio structurally different from the index. If you are not willing to own the banks and conglomerates at their prevailing valuations, and if you are patient enough to absorb tracking error while the market recognises valuations you identified earlier, you can potentially generate alpha not by predicting macroeconomic outcomes (which is as difficult in Turkey as anywhere) but simply by buying better businesses at better prices and waiting for that gap to close. The strategy requires a client base that can tolerate periods of underperformance and a mandate that permits genuine benchmark deviation. Çelik has both.

The Portfolio: Concentrated and Deliberate

The NEO Hisse Senedi Fonu currently holds 18 positions. As of the most recent quarterly KAP disclosure in March 2024, the top ten holdings account for approximately 67% of portfolio value. The fund's annual portfolio turnover rate is approximately 40%, a figure slightly higher than typical for the fund, attributable to position adjustments during the rate cycle transition of the past year. For context, the industry average annual turnover for Turkish domestic equity funds is above 200%. The fund holds positions, on average, for something over two years.

The portfolio has a pronounced tilt away from financials and towards mid-cap industrials, consumer staples, and logistics companies. The reasoning is consistent with the BIST100 structure critique: these sectors are undercovered by sell-side analysts, less sensitive to macro inputs, and more likely to be mispriced for company-specific reasons that a fundamental research process can identify. The fund does not own any Turkish bank shares. It never has.

The fund's KAP disclosures reveal a pattern consistent with this approach. One illustrative case: a logistics company purchased in 2020 at a forward price-to-earnings ratio of approximately 6, at a time when the company's e-commerce exposure was not yet visible in reported revenues but was legible in operational data and customer contract disclosures. The position was held through two significant market drawdowns over the following three years. Approximately 60% was sold in 2023 when the multiple reached 14, with the remaining 40% still in the portfolio. The position at its peak represented 9% of the fund. This is concentration in practice: a high-conviction bet, held through volatility, and exited in stages as the valuation gap closed. The approach demands both analytical rigour in identifying mispriced businesses and temperamental discipline in holding through periods when the market disagrees.

The Shortcomings

The fund's performance record is genuine, but investors considering it should understand several real limitations.

First, concentration cuts both ways. An 18-position portfolio means that a single large holding moving sharply against the thesis is a meaningful drag on the whole. In 2022, the fund underperformed its benchmark by approximately 800 basis points in a period when an energy-sector holding was caught in a government pricing intervention that the fund's fundamental analysis had not adequately weighted. The underlying business was correctly identified; the political risk was mispriced. The 2022 underperformance was recovered by the end of 2023. The lesson is real nonetheless: in Turkey, political risk is never fully quantifiable, and any model that claims otherwise should be viewed with suspicion.

Second, the management fee is 1.85% annually. This places the fund in the upper quartile of Turkish equity funds by cost. The fee is defensible if alpha generation continues; it becomes hard to justify if the fund reverts to benchmark performance, as many outperforming equity funds eventually do as AUM grows and the investment universe of tractable opportunities becomes more constrained. At 780 million TL in AUM, the fund is approaching a size at which building positions in smaller mid-cap names begins to move the market against itself. Whether management has a soft capacity limit in mind, and whether they will close the fund before scale erodes the strategy, remains to be seen.

Third, the fund's performance is substantially dependent on Çelik's individual judgement. Key-person risk is inherent in any concentrated fund managed by a single portfolio manager. Whether succession arrangements are in place is not publicly disclosed, which is not unusual for a Turkish asset manager but is a risk factor that investors should weigh explicitly.

The Broader Argument for Turkish Active Management

The case Çelik makes for active equity management in Turkey is not unique to his fund. It is a structural argument about market composition, analyst coverage density, and investor behaviour that applies, to varying degrees, across the BIST. The Turkish sell-side is thin relative to the size of the market; coverage of mid-cap and small-cap companies is sporadic and often superficial. Institutional investment mandates tend to be benchmarked, creating consistent pressure on fund managers to hold index-like portfolios and accept tracking error risk as the career threat it is in most institutions. The result is a market that, at the margins, is less efficiently priced than most developed equity markets, and in which a patient, fundamental, genuinely benchmark-agnostic investor has a plausible structural edge.

Whether that edge is sustainable as the market develops, as TEFAS drives more retail flows into active funds, and as the institutional base deepens, is a legitimate question. The structural conditions supporting active management in Turkey may persist for longer than most observers expect, because the forces driving convergence with developed markets (sell-side coverage, institutional mandate design, index product availability) are developing slowly and unevenly. The five-year track record of the NEO Hisse Senedi Fonu is consistent evidence in that direction, without being proof.

For investors with an appropriate time horizon, a tolerance for benchmark divergence, and a willingness to pay above-average fees for a fund that is genuinely different from the index, the NEO Hisse Senedi Fonu deserves serious consideration. It is not a comfortable fund. It is not designed to be. But in a market crowded with funds that deliver benchmark-adjacent returns in an active wrapper, a fund that is actually different is worth knowing about.