This €296m (£219m) fund was launched in January 2000 and has been co-managed by Rollo Roscow and Mohsin Memon since November 2014.
Their aim is to outperform the MSCI Emerging Markets Europe 10/40 index by 3.5 per cent a year across rolling three-year periods, gross of fees. The portfolio invests primarily in companies in central and eastern Europe, including emerging markets of the Mediterranean and the former Soviet Union. The fund can also seek limited exposure to northern Africa and the Middle East.
Mr Roscow says: “We primarily target alpha generation from bottom-up fundamental research carried out by our analysts in combination with fund managers, but we also look to generate value from top-down country allocation guided by a proven quantitative-allocation model, together with a judgemental overlay. We believe we should manage both return and risk and our aim is to achieve returns with the minimum level of risk through a proactive approach to risk control.”
The managers note the investment process remains under constant review “to identify whether there are elements that could be improved, or new ways to add value for clients”.
“Our process has a considerable history of success and we believe we have excellent risk-management systems and controls,” Mr Roscow says. “While we are always looking at ways to evolve and improve, there have been no significant changes to our process since 2004.”
As a portfolio focused on a specific area of the emerging markets, its risk-reward sits at level six out of seven, while the ongoing charge for the ‘clean’ C Accumulation share class is 1.37 per cent, according to the fund’s key investor information document.
The fund has lost 21.2 per cent for the five years to September 28 2015, data from FE Analytics shows. However, this is an improvement on its benchmark – the MSCI Emerging Markets Europe 10/40 index – which fell 34.1 per cent in the same period. Shorter-term performance has struggled given the macroeconomic uncertainty in the region, but the vehicle delivered a positive 13.4 per cent for the 10 years to September 28 against the index’s gain of 0.4 per cent.
Recent changes to the portfolio include moving its allocation to Turkey from a “modest overweight to a neutral position, primarily given elevated political uncertainty ahead of the election scheduled for November”. In spite of this, Mr Roscow notes stock selection in the country has been a strong contributor for the year to date, with the fund positioned in companies that “benefit from structural growth drivers, which are less sensitive to the uncertain political backdrop”.
He adds: “We are also invested in Turkish exporters and companies with dollar-linked revenues that have benefited from the weaker lira. In Russia, our exposure to mining exporters has helped, as well as food retail, which has proved resilient to the consumer downturn.”
In addition, the manager notes holdings in central European exporters with close trade ties to the eurozone have helped performance this year. He highlights investments in Polish mid caps that have “strong fundamentals, structural growth drivers and are somewhat insulated from political risk due to overseas operations” as having generally supported returns.
On the flip side, Mr Roscow acknowledges the overweight positions in Turkish banks have detracted from the fund’s performance due to increased political uncertainty. He adds: “Our positions in Polish banks have also detracted from performance, as government policy surrounding Swiss franc mortgage losses and the potential for more onerous taxes should the opposition PIS party come to power have both weighed on the sector.”
Looking ahead the manager notes the outlook is “somewhat cautious given a generally unsupportive global macro backdrop and in some cases country-specific challenges”.
Mr Roscow points to Poland, Hungary and the Czech Republic as benefiting from a resurgence in European growth. But he adds that while Turkey has near-term political headwinds, its young and growing population and a strategic geographic position between Europe and the Middle East continues to make it an attractive long-term investment.
EXPERT VIEW
Lena Tsymbaluk, manager and research analyst, Morningstar
This fund boasts an admirable risk-reward profile, achieved with the help of successful stock picking by the analyst team and the managers’ proactive approach to risk management. Risk controls are prevalent at many levels, including the use of a stop-loss discipline and tracking-error adjustment, which is a competitive advantage for this product. Investors should note there was a change of manager in November 2014, when Tom Wilson left to join the global emerging markets team and long-standing members of the Europe, Middle East and Africa team, Rollo Roscow and Mohsin Memon, were promoted to co-manage the fund.
