Introduction
The MSCI Emerging Markets Europe index allocates to Russia, Turkey, Poland, Greece and the Czech Republic, while the FTSE Emerging Europe All Cap index counts Hungary among emerging Europe but excludes Greece. The Euromoney Emerging Europe ex Russia index comprises countries from 14 emerging European markets, including Romania, Slovenia, Cyprus, Malta and Croatia.
A search of FE Analytics reveals the funds that offer investors exposure to this asset class go by the terms ‘emerging Europe’, ‘Eastern Europe’ and ‘new Europe’.
Among the offerings are funds from Pictet, Schroders, Jupiter, JPMorgan and Baring. The Fidelity Emerging Europe, Middle East and Africa fund covers a wider geographical area, while the JPM New Europe fund has exposure to Austria, Turkmenistan, Kazakhstan and Ukraine.
Investors in emerging Europe may have experienced a rather bumpy ride over the past 10 years, with the MSCI Emerging Markets Europe index nosediving during the financial crisis in 2008.
However, the asset class has since recovered. Data from FE Analytics shows the MSCI Emerging Markets Europe index returned a respectable 77.83 per cent to investors in the 10 years to November 18. It was beaten by the S&P 500, the MSCI World and FTSE 100 indices, which delivered returns of 152.84 per cent, 135.34 per cent and 100.96 per cent respectively in the period. But it’s important to note that this emerging markets index had been outperforming all three indices until last year, when it began to lag.
The ongoing conflict between Russia and Ukraine has created some uncertainty in this region, while the eurozone more generally has been struggling with slowing growth.
Oleg Biryulyov, co-manager of the JPM New Europe fund, acknowledges: “Within EMEA [Europe, Middle East, Africa], the main story remains dominated by Russia, as the headwinds facing that market have grown significantly stronger, with the steep decline in oil prices and the rouble’s rapid depreciation.
“As a major oil exporter, Russia’s economic growth is highly levered to the oil price, leading to widespread predictions of a more significant slowdown in the economy.”
Although there is currently volatility in Russia’s markets, long-term investors are taking into account emerging markets as a whole.
Mr Biryulyov adds: “Looking at the broader emerging market equities picture in 2015, US dollar strength has given global investors another reason to be cautious about the asset class.
“Nagging concerns about Chinese growth; persistently negative emerging market earnings; a disappointing status-quo election result in Brazil; and a dim outlook for commodity exporters have weighed on the relative performance of emerging market equities overall. We do not expect emerging markets to… generate sustained outperformance until a more durable turn in fundamentals is evident.”
Ellie Duncan is deputy features editor at Investment Adviser
THE PICKS
Baring Emerging Europe
This investment trust, run by Matthias Siller, was launched in January 1994 and is £131.5m in size. According to its factsheet, the portfolio is currently 53.8 per cent exposed to Russia, with another 15 per cent allocated to Turkey and 12.4 per cent in Poland. Over a 10-year period the trust has delivered a return of 102.01 per cent to November 19 2014, in line with its benchmark, the MSCI Emerging Markets Europe 10/40 index. Performance has suffered more recently but this trust may be an option for investors who want to gain exposure to this region via a closed-ended vehicle.
BlackRock Global Funds Emerging Europe
This €1bn (£795.1m) offering is run by experienced manager Sam Vecht. The fund invests at least 70 per cent of its total assets in companies domiciled in, or with a predominant part of their activities in, emerging European countries and can extend that exposure to firms in the Mediterranean region. Performance figures are a little disappointing, with the fund generating a loss of 4.27 per cent in the five years to November 19, which has widened to 15.57 per cent over one year. This could be one to watch if the manager turns around performance.
EDITOR’S PICK
Schroder ISF Emerging Europe
Since 2005, Allan Conway and Tom Wilson have co-managed this fund, which launched in 2000. According to its factsheet, it aims to provide capital growth through investments in central and Eastern European companies, including the markets of the former Soviet Union and the Mediterranean emerging markets. The fund’s performance in the 10 years to November 19 has generated an impressive 126.61 per cent return, compared to 102.36 per cent by the MSCI Emerging Markets Europe 10/40 index. It has also outperformed over three and five years, FE Analytics shows. The performance indicates that this could offer good long-term investment opportunities.
