A forward-looking score for Turkish equity funds

Choosing an investment fund is a far harder decision than it appears. Past performance is misleading, the management fee alone is not a sufficient criterion, and understanding what the fund actually invests in often requires reading dozens of long and complex reports.

SmartFonSkor reduces this complexity to a single core question: what is the expected return of the portfolio this fund currently holds?

SmartFonSkor (Smart Fund Score) is an evaluation system that scores equity-weighted funds traded on TEFAS (the Turkish Electronic Fund Trading Platform) by taking forward-looking return expectations into account. Investment funds operating in Turkey are required to publicly disclose the contents of their portfolios at the end of each month through KAP (the Public Disclosure Platform). SmartFonSkor is calculated based on the portfolio compositions in these disclosures.

Evaluation Universe

SmartFonSkor's primary coverage is equity-weighted funds. The Capital Markets Board of Turkey (SPK) defines an equity-intensive fund as one whose accounting records show at least 80% of its assets invested directly or indirectly in equities. These funds make up our primary evaluation universe.

However, TEFAS also includes mixed funds with equity weights of 50% or 60% — funds that fall outside the equity-intensive classification. The SmartFonSkor algorithm technically works for these funds as well; a score can be produced from the equity positions the fund reports. For this reason we do not exclude such funds from our evaluation, but we treat them as a separate category, because for non-equity-intensive funds the score explains only a portion of the fund's total return.

Derivative Instruments and Score Interpretation

SPK's equity-intensive fund definition is based on accounting records. This creates a point of caution in certain analyses. In particular, some funds make heavy use of derivative instruments — primarily index futures and stock-specific futures.

From an accounting standpoint, a fund may appear to have 80% or more of its portfolio directly invested in equities, while the remaining portfolio sits in derivative positions that accounting cannot fully reflect. These derivative positions can amplify, dampen, or hedge the fund's equity exposure; these effects are not directly visible in the month-end equity list.

We do not exclude such funds from evaluation. Instead, for funds that use derivative instruments, we display an indicator alongside the score so that investors can take this information into account. The SmartFonSkor value remains a meaningful signal for such a fund — but how much of the score reflects direct equity exposure versus the fund's derivative positions is left to the investor's own further investigation.

The calculation method is transparent and direct:

• Each fund's reported equity holdings as of month-end are identified.
• Using the weights of these holdings within the portfolio, the weighted average of the corresponding SmartSkor values is computed.
• The resulting value is the fund's SmartFonSkor.

Since SmartSkor is already calculated for every stock traded on Borsa Istanbul, the fund-level evaluation is a natural extension of that foundation. For the details of the SmartSkor methodology, see the relevant page.

Score Scale — Why a Continuous Number?

SmartFonSkor values sit on a structurally different scale from SmartSkor. SmartSkor ranks stocks as integers from 1 to 10 (the top 10% receive 10, the bottom 10% receive 1). SmartFonSkor is continuous — values like 7.5 or 5.4 are typical.

This follows directly from how it is calculated: SmartFonSkor is the weighted average of the SmartSkor values of the stocks in the fund's portfolio. The number tells you what SmartSkor level you would be holding if you collapsed all of the fund's stocks into a single equivalent BIST stock. If a fund is composed primarily of SmartSkor 8 and 9 stocks, its SmartFonSkor will be around 8.5 — and that number directly tells you the SmartSkor level of the equivalent single stock.

Why Month-End? A Deliberate Design Choice

Funds can partially or completely change the equity holdings they reported at month-end during the following month. SmartFonSkor reflects not the portfolio's real-time composition, but the version disclosed at month-end. This is a deliberate design choice.

The stocks a fund manager chooses to hold at month-end are a concrete reflection of that manager's stock-picking ability and investment philosophy. The manager knows what they are choosing to display at month-end; that portfolio is a direct expression of decision-making quality. SmartFonSkor is therefore not merely a snapshot — it is also an indicator of the fund manager's long-term decision-making quality.

Update Frequency

Funds publish their portfolio disclosures at the end of each month. SmartFonSkor is updated monthly in line with this publication schedule. The value does not change between updates.

One of SmartFonSkor's most powerful tools is the two-dimensional comparison chart, which presents expected return alongside management costs. The horizontal axis shows the fund's annual expense ratio; the vertical axis shows the SmartFonSkor. Each point represents a fund.

Looking at either expected return alone or management fee alone is insufficient; both must be evaluated together. A high expectation can be erased by a high cost, and a low-cost fund with low expectations may not deliver real value to the investor.

Top Left — The Target Zone

Funds with a combination of high SmartFonSkor and a low expense ratio sit here. This is the ideal combination for the investor: high return expectation, low cost. The funds in this region are your priority candidates for review.

Top Right — Expensive but Promising

There is a high return expectation, but management fees are also high. The question to ask about these funds: is the high management fee justified by genuine value-add? The manager's long-term track record and the rationale for the fund's strategy should be scrutinized.

Bottom Right — To Be Avoided

The combination of low SmartFonSkor with a high expense ratio. It means the investor is holding a low-expectation portfolio at a high cost. Staying away from funds in this region is a wise choice.

Bottom Left — Funds Behaving Passively

Funds with low management fees and also low expected returns. Funds that effectively track an index without engaging in genuine active management often sit in this region. The question to ask: if you're paying an active management fee, is that fee justified? A passive index fund delivers the same outcome at a lower cost.

The most practical way to use SmartFonSkor is to conduct fund selection in two stages.

Stage One: Identify High-Score Funds

Mark the funds with high SmartFonSkor values on the list. This is the foundational data showing which funds are more likely to add value to your portfolio in the coming period.

Stage Two: Compare Costs

Compare the management fees of the funds identified in Stage One. At the same expected return level, choosing the fund with the lower expense ratio directly improves realized return. When two funds have nearly identical expectations, a 1% difference in fees compounds into a significant gap over the long term.

The two-dimensional chart enables this two-stage evaluation to be done at a single glance. Funds close to the top-left corner are the candidates that should receive priority in your review.

Monitoring Frequency

Scores are updated at the end of each month after fund reports are published. The ideal usage frequency is therefore monthly. Reviewing where each fund sits on the chart at month-end provides an evidence-based foundation for evaluating whether the current fund investment is still a good choice.

SmartFonSkor is the fund-level extension of the SmartSkor methodology. Its computational infrastructure is built on SmartSkor rankings that have been tested on 20 years of historical Borsa Istanbul data for every traded stock, and validated out-of-sample. For the details of the SmartSkor methodology, performance test results, and the academic literature behind it, see the relevant methodology page.

Relationship to SmartSkor

SmartFonSkor is built directly on top of SmartSkor; a fund's SmartFonSkor value is the weighted average of the SmartSkor values of the stocks in its portfolio. Every update to the SmartSkor methodology — new factor definitions, label changes, calculation mechanics — therefore propagates directly into SmartFonSkor. The two systems are not separate; they are two layers of a single analytical foundation.

Limitations

SmartFonSkor is not a guarantee — it is a research-based return expectation. A high score does not promise an absolute gain in the short term; its strength shows in the medium-to-long term. Fund selection should always be evaluated alongside the investor's own risk appetite, investment horizon, and existing portfolio structure. SmartFonSkor does not replace this decision; it aims to simplify it.

Additionally, SmartFonSkor evaluates only the equity positions in a fund's month-end portfolio. Non-equity holdings (cash, bonds, derivatives, foreign securities) are not included in the score. As a result, SmartFonSkor offers a meaningful comparison primarily for equity-heavy funds and provides only a partial picture for mixed funds.