Eastern European Fund – November 2012

Looking back on October 2012, there’s a clear impression of a relatively quiet month on the markets. Overall, the fund saw growth of 0.74%, which compared favourably with the peer group average (a fall of 0.49%).

The best performing market was Turkey, where a rise of 10.4% during the course of the month was of benefit to the fund.

At the other end of the spectrum, the performance of the Russian market was disappointing, with a decrease of some 3.4% (in US$ terms). Fortunately, the fund was able to take advantage of strong stock selection within the oil sector.

The announcement that Rosneft (the state-backed company) was buying TNK from BP and its Russian owners, brought welcome news.

Overall, the fund holds 56.7% within Russia, 13.9% within Turkey and 9.9% in Poland. Further holdings are present in Hungary, the Czech Republic and Kazakhstan. A further 9% of the overall allocation is in the form of cash.

Looking at key metrics for the fund, it can be seen that an annualised return of 19% has been produced since the launch of the fund in 2000. The fund has a total size of almost $585 million and almost 36% of holdings are within the Energy sector.

Eastern European Fund Report – October 2012

September was a good month for the region and for the Nevsky Eastern European Fund. This was largely driven by news from the United States, where the Fed made an announcement about open ended QE3.

As a result, the Fund saw growth of 3.8% during September. This compares with a 4.1% rise for the peer group average.

Given the Fed’s actions, the decision was taken to plough more money into Turkey and Russian holdings, resulting in a reduction in the amount of cash being held.

There were some concerns surrounding the poor macro economic fundamentals in Western Europe, particularly with reference to the possibility of these having a knock-on effect elsewhere. Despite this, strong gains were seen in Hungary and Poland.

In fact, both Polish and Hungarian markets rose by 8.5% in US terms during the course of the month. In part, this was helped by the stronger Euro.

With weak economic fundamentals and plenty of liquidity (being provided by Central Banks), the Fund Managers have judged that it is prudent to maintain a relatively high cash balance at this period in time.

Overall, the Fund held 10.4% of the overall value in cash. 57.1% of the Fund represents investments in Russia, with 11.5% in Turkey, 11.1% in Poland and 4.4% in Hungary. The remainder is split evenly between the Czech Republic and Kazakhstan.

Eastern European Fund Report – June 2012

The month of May was horrendous for emerging markets, although the fund was able to out-perform its peers, despite a fall of some 16% during the course of the month.

The falls can largely be explained by a range of poor economic data from various sources. In particular, there are obvious concerns relating to the slowdown of the Chinese economy. Disappointing economic data from the US and the continuing Euro Zone crisis are only adding to an uncertain outlook.

The best performance within the region was in Turkey (representing a fall of 11.9%), with Russia seeing particularly poor returns (with a dramatic fall of 19.4% during the month).

Looking specifically at the Russian market, it’s clear that falling oil prices have made a significant contribution there. The managers at Nevsky Capital have, however, decided not to reduce exposure to the Russian market any further. This is due to the fact that expectations are that the oil price will stabilise.

During the course of the month, exposure was also reduced in Hungary. This leaves the fund holding 18.6% in cash by the end of May.

It’s felt that this cash will not be invested until such point as there is an obvious improvement in global economic outlook and market sentiment.

January 2012 – Eastern European Fund Report

December 2011 represented a difficult month for the region as a whole. In part, this reflected some negative sentiment surrounding emerging markets, but it was also clear that some specifics related to the region.

The fund saw a fall in value of 9.5% over the course of the month. Although this did not compare favourably with the peer group average (which saw a decline of 9.2%), the fund did out-perform that peer group average by 7.9% when looking at the entire year.

The worst performing market was Russia, where political uncertainty contributed to a decrease of more than 10%. Putin’s political party (United Russia) was seen to have a poor election result, which was also followed by a number of domestic protests.

To a certain extent, these protests appear to have shocked the Russian authorities and political establishment. Although the situation now seems to be under control, it’s clear that there is scope for more uncertainty in the coming months.

Nevsky Capital reacted by reducing the Russian weighting during the month. The total fund allocation in Russia is now at 60.6%, with more than 10% of the fund being held in cash.

There were also problems in Hungary, where the government has come under increasing criticism in recent months. The Hungarian market saw a loss of more than 10%. The Nevsky fund managers (Martin Taylor and Nick Barnes) point to the fact that some Hungarian stocks may be undervalued. They feel, however, that they would like to see a more conciliatory tone from Orban, the Prime Minister of Hungary.

At this point in time, it can be seen that the fund is holding a significant proportion in cash. This is likely to continue, until there is clarity regarding the Euro Zone and the existing political situations, particularly in Russia and Hungary.


Eastern European Fund Report – June 2011

A difficult month for global markets saw the MSCI Emerging European Index fall by some 6.8% (in US$ terms). By comparison, the Eastern European Fund, from Nevsky Capital, saw a fall of 6.3%.

Taking the region in its entirety, it’s clear that Central Europe saw the best performance, with the Polish market stronger than elsewhere. Indeed, the fall of 3.7% in Poland during the month of May is something that really catches the eye.

The fund managers have decided to increase the Polish exposure, although there is still a feeling that the market is not particularly attractively valued. The increasing exposure can mainly be seen as a case of identifying selected companies with more attractive valuations.

One disappointing market was Turkey, which saw a fall of 13.3% during the month. This may be seen to be reflection of domestic economic policies that have led to rising prices domestically, with inflation hitting a rate of 7.2% in May. Given this situation, the fund managers reacted by decreasing exposure to this market.

Overall in May 2011, the fund had 59% of investment allocated to the Russian market, with 12.3% allocated to Poland.

Since the foundation of the fund, an annualised return of almost 23% has been achieved, based on US$ terms.

Eastern European Fund – May 2011

Looking at the performance of the Nevsky Capital Eastern European Fund during April 2011, it can be seen that it once again managed to out-perform the overall GEM index during the month.

Indeed, taking the month as a whole, the fund rose by a total of 4.1% (in US$ terms). This compares to a 3.8% rise in the MSCI Emerging European Index.

Looking at specific markets, it can be seen that performance was particularly strong in Hungary, Poland and the Czech Republic. These 3 markets were able to benefit from the strength of the Euro, resulting in rises of 10-12%. The fund was well positioned to take advantage of this situation, with particularly strong selections in both Hungary and Poland.

The Russian market remained broadly flat, despite the continued strength of oil prices. Gazprom continued to perform well, but Nevsky Capital have reduced their Russian weighting since the end of April.

Looking at the overall make-up of the fund, the geographic allocation in April 2011 was:

  • Russia: 61.6%
  • Poland: 11.3%
  • Hungary: 10.4%
  • Turkey: 8.8%
  • Czech Republic: 3.7%
  • Kazakhstan: 1.7%

The remainder is currently held in cash.

By sector, it can be seen that the fund is comprised of 29.5% Energy and 28.3% Financials. Other sectors represented include Materials and Telecommunications.