Eastern European Fund performance in June

Now feels like a good time to look back on the performance record of the Eastern European Fund back in June. This Nevsky Capital fund had a launch price of $10 back on 13 October 2000.

During the course of June, there was an overall fall in value of 1.4% and some of this figure can certainly be attributed to the relatively poor performance of markets in Turkey during this period. Indeed, Turkish investments saw a loss of 3.9%.

This is a situation where wider influences are undoubtedly having something of an impact. Public unrest looks to have unsettled the markets and the Fund managers at Nevsky will clearly be required to monitor that situation carefully.

An enormous amount will rely on the reaction of Turkey’s government. A situation that could have been controlled has clearly demonstrated what can happen when things get out of hand. That’s something that can have an impact on the Fund, given that there’s an exposure of around 16%.

Better news came from Hungary, with a rise of some 4.7% during the month. This may be seen, to a certain extent, as defying expectations. There appears to be a general weakness in the Hungarian economy that won’t be solved until there are improvements in the situation facing western European economies. That’s reflected in the relatively small holdings at this point in time.

Indeed, Hungary represents only 1.7% of the Fund. The largest holding remains Russia, with more than 50% of total investments. The Financials and Energy sectors represent the markets with greatest levels of exposure.

Meeting the team

With any Fund, there’s a certain level of interest in examining how the situation is developing over time. How are decisions being made and how frequently are those decisions having positive results?

Nevsky Capital's Nick Barnes

Nick Barnes and Martin Taylor provide leadership, directing operations.

Martin Taylor

The decision making process obviously needs to be controlled and analytical. With a suitable knowledge base, it’s possible to make the right decisions. Given the investment strategy that’s being pursued, this means having a thorough understanding of the political situation in central and Eastern Europe, as well as being briefed on changes within companies and markets.

Eastern European Fund Investment Process

For individual investors, the process of choosing the markets, sectors and companies to invest in can seem incredibly confusing. For more of us, the truth is that we will always struggle to understand what’s involved.

In a sense, it’s this fact that ensures that there will always be a demand for professional investors. Those who manage significant funds are clearly expected to make use of their experience and expertise.

With this in mind, it seems clear that out-performing the market requires a level of knowledge that is not available to most of us.

Employees of Nevsky

So how do the professionals make judgements? Looking at information provided on the Nevsky Capital website, it’s clear that there is a structured process in place for making decisions. This can be broken down into a number of areas and involves the following steps:

Primary Inputs

There is a mass of data involved in carrying out proper analysis, including company accounts and broader macro-economic data. Into this mix is put the results of meetings with those involved in particular businesses, together with individuals who are responsible for setting policy.

Analysis

Having all of the above information must be useful, but it would not lead anywhere, without having the knowledge and tools to carry out proper analysis. Here, it seems that Nevsky have a framework in place that always looks to consider management quality and strategy, prospects for growth and the liquidity of any business.

The latter involves considering a diverse range of elements, including balance sheet data.

Forecasts

In order to produce forecasts, specialist software is used. Although it’s impossible to see what the future may hold, it’s presumed that such software is based on the previous performance of companies and that it also takes into account specific knowledge that is held by the team of analysts.

Decision Making

Finally, there’s the need to come to a decision on when to invest and when to let go of a particular investment. The timing must be critical in some cases and it’s likely that such decisions are taken by a team in most cases.

The above is based on reading between the lines on the work done for a particular fund. It’s likely that most fund managers will look to undertake a similar process, although there will be variations from one to the next.

In the case of the Eastern European Fund, it’s clear that there’s a need to hold specific information on different countries. That means knowing what’s happening in the Czech Republic, for instance, in political, economic and social terms.

In some of the countries that are considered, it’s presumably the case that the situation can be quite fluid. Understanding the changes that are taking place will be a key part of the challenge.

The job of a fund manager must be fun at times, but it’s clear that there’s scope for considerable levels of stress. Making the right decisions certainly won’t be easy on all occasions, but the drive here must be to get things right on the majority of occasions, maintaining a certain competitive advantage.

That’s why funds are measured against peers, in order to see whether the right decisions are being taken frequently and whether it’s possible to stay ahead of the game.

The Eastern European Fund is managed by Martin Taylor and Nick Barnes.

Nicholas Barnes adjusts tie

The Standard & Poor’s View

We’ve been taking a look at the S&P report that covers the Nevsky Capital Eastern European Fund. It makes for interesting reading and we thought that it might be useful to present some of the highlights here at Nevsky News, where they will be available to individuals and those looking to learn more.

Nevsky Capital Martin Taylor

The report was produced in August 2011 and the opinion offered in the report is dated July 2011. It begins by discussing the fact that the Nevsky team focuses on two funds, with the Eastern European Fund obviously being one of them. It’s remarked upon that there have been substantial inflows into the fund – meaning that more people were looking to invest in this fund. That will certainly have pleased Martin Taylor and Nick Barnes of Nevsky Capital, giving them more scope.

Nevsky Capital Nick Barnes

Indeed, it’s noted that the team had taken the decision to soft close the fund. At the time, the team consisted of two fund managers, two economists and no fewer than 6 sector-specific analysts. It’s to be expected that a substantial team would be required.

In general, between 25 and 40 holdings are reckoned to be held at any one time. S&P suggest that a very active approach is taken to management, with a concentration of time and effort on studying the fundamentals of countries, sectors and individual companies.

The fund is awared a AAA rating from S&P. What that means is that the fund is seen to demonstrate the highest measures of quality within its sector. This information is based upon the investment process, although this only tells part of the story.

There is also a view taken on the consistency of performance achieved by the management, with specific consideration given to how such levels of performance compare with other funds that operate with similar objectives.

Reading through the report, it’s clear that S&P have given the fund something of a “thumbs up”, but it’s clearly for each of us to observe and to research, prior to making investment decisions.

When you carry out your own research, you may regard such analysts’ reports as being part of the wider package of information that’s made available to you. They may be informative, or you may feel that they are simply to be ignored. That choice is very much your own, leaving you to make the right decisions for your own, personal circumstances.

Behind the scenes

When we look behind the scenes at any investment fund, we tend to find the full story. In truth, producing results is rarely the work of one or two individuals. The reality is that it would be difficult for such a small team to compile the amount of information that’s necessary to really judge the potential value offered by differing investments.

Nick Barnes Nevsky Capital

This means that it needs a group of real analysts to sit down and to look at specific countries, markets and companies. To begin with, it’s fair to say that this must involve a lot of graphs. For those of us who may not have been great at school, that probably doesn’t sound like a lot of fun!

Martin Taylor Nevsku Capital

That’s right, it means a lot of addition, subtraction, multiplication and division. Although there will certainly be computer programs available at Nevsky Capital to make such data transformations easier, the team led by Martin Taylor and Nick Barnes must still find themselves relying heavily on mental arithmetic in the first instance. That’s the way that many of us look to narrow down options.

Nick Barnes Nevsky Capital

It’s only once those initial, near-immediate, calculations have been carried out that we can seek to move on. That may well be the same for you, depending upon your own chosen role. Admittedly, you may not be focused on managing an investment fund, but it’s easy to see how the same rules might generally apply.

Nevsky Capital Martin Taylor

Ultimately, the team will be looking for signs that particular investments offer value. By the same token, they will be attempting to identify those that should be avoided. Using computer programs and algorithms will only take things so far. Beyond a certain point, it clearly becomes necessary to use the experience that must come from years of investing.

What can the rest of us learn by watching such teams in action? Although we may be investing on a smaller scale, it seems clear that we can also look to make informed decisions. That must be at the heart of all that we do.

Martin Taylor of Nevsky Capital

Martin Taylor is one of the Fund Managers, helping to keep the Eastern European Fund on track. As can be seen, from the reports that we reproduce and analyse here at Nevsky Capital News, any fund can see increases and decreases in value.

To a certain extent, it can be said that the success or failure of any Fund Manager will be defined by the ability to out-perform direct competitors. Although the overall value may rise or fall, depending upon the performance of specific businesses, sectors and broader market sentiments, the key is to provide better returns than the alternatives.

When the overall value is falling, does it fall at a slower rate than competitors? That’s something that we are continually looking to observe. The same can be said to be true when thinking about rising prices: are things better than others? Or is a fund simply seeming to perform well due to a wider rise in stock market positioning. Is there, in other words, the opportunity to actually make more by investing elsewhere?

As might be expected, our own reports and reviews seek to answer such questions. It’s likely that you’ll have your own views here too.

Martin Taylor Photographs

Martin Taylor of Nevsky

 

Martin Taylor

 

Martin Taylor of Nevsky adjusts his tie

About Martin Taylor

The establishment of the Eastern European Fund has seen Martin oversee investments in a range of countries in central and Eastern Europe. Such investments, as carried out on behalf of Nevsky Capital, would clearly not be possible without a considerable degree of knowledge.

As with any investment fund, there’s a reliance on a dedicated team of analysts and specialists. There’s a need to understand what is going on within specific countries, industries and companies.

If a changing politicial environment within Russia, to take one example. means that opportunities are emerging there, then it’s clear that there are advantages associated with understanding that situation and seeking to move quickly. As with so much, it’s all about competitive advantages.

The ability to make the first move can often ensure better returns for investors. It can also be seen that this works in reverse, with the requirement to act quickly in order to reduce some holdings. This may come about as a result of changes within an individual industry.

Predicting such changes would simply not be possible, without having the dedicated team of experts that are available to Martin. As a result of this association, the Eastern European Fund undoubtedly aims to make investments that are sensible and should be cost-effective over time.

Here at Nevsky Capital News, we see part of our role as being to identify how well the fund is performing and also to bring you the critical facts. We follow up on releases and look to answer questions that you may have.

When you are pondering investment decisions, it’s clear that there is a necessity for you to carry out your research. When large sums of money are involved, you may (quite rightly) feel that there is little scope for error. With this background in mind, it’s so important that you should have the opportunity to review as much information as is feasible and possible at any point in time.