Turkey ETF: Bigger Highs and Scarier Lows

Turkey straddles the border between Europe and Asia. And yet, due to a largely Muslim population, it is often lumped in with Iraq, Syria and other Middle East neighbors.

So what are the prospects for investing there? Indeed, Turkey's prospects are looking better than they have in quite some time. Consumer confidence is surging. Inflation has disappeared to levels not seen in 4 decades. And the government is outwardly promoting the notion that the economy is "in recovery."

Turkey's central bank recently cut target rates from 9.25% to 8.75%, while hinting that this would be the final stimulative action. Can you imagine? While the U.S. has negligible interest rates at 0%-0.5% and has pursued "quantitative easing" policies, an emerging country feels strong at 8.75%.

Yet if all is well in Istanbul, why aren't I more excited about investing here? There are a couple of reasons, actually. For one thing, Turkey is politically cantankerous.

On Wednesday, the Wall Street Journal reported that there are significant anti-democratic, military factions working inside the governement's structure. In fact, Turkish papers reported a military colonel's call for toppling the current leadership.

The Turkish military has long been at odds with a number of democratically elected governments, ousting 4 from power since the early 60s. And it's not beyond the realm of possibility that the Turkish people will find themselves dealing with political upheaval once again.

Second, I am far more comfortable investing in countries where the economic, political and cultural components are easier to comprehend. We know far more about China. We know a great deal about Brazil. Unless you have a particularly clear grasp on Turkish companies in the iShares MSCI Turkey Fund (TUR), the more sensible emerging market investment would be the broader iShares Emerging Market Index Fund (EEM).

Granted, Turkey has slightly outperformed the benchmark index for emerging markets... but only by a hair. Does this chart below tell a completely different story? With a correlation of .94 between TUR and EEM, does it really make sense to own both? And if you can only own one, wouldn't you prefer diversification across all emerging markets?

Full Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company may hold positions in the ETFs, mutual funds and/or index funds mentioned above.