Emerging Markets  

Quaero Capital extends range of European equity funds

Quaero Capital extends range of European equity funds

Specialist asset manager Quaero Capital has added Arrash Zafari’s New Europe equity fund to its bank of European small and mid cap (SMID) range.

According to the company, Mr Zafari, a portfolio manager with Quaero Capital’s SMID team for three years, has been developing a strategy that will benefit from under valuations in Eastern European stocks.

His approach takes into account the prevalence of single digit price to earnings ratios, price-to-book values of less than one and dividend yields of more than 5 per cent. 

The fund strategy Mr Zafari has falls in line with Quaero’s broader European SMID strategy of finding companies from emerging markets that may slip under the radar and are not covered by analysts.

Mr Zafari said: “There are a significant number of high quality, small businesses across Eastern Europe. Among them are those which offer all the advantages that we see from companies in more mature markets but are simply ignored by those more inclined to go for the big names.

"In my view, these large East European companies are the ones most prone to external risks, including political risk, and that has coloured investor sentiment for the wider market.

“Smaller Eastern European companies are left alone to get on with what they do best, and many are seeking to develop along the same lines as their western European counterparts.

"I therefore believe that the opportunities offered by new Europe will provide a new dimension to our European small and mid-cap strategies, and a new dimension for investors in the UK.”

Mr Zafari has conducted extensive research into the eastern European market for the past three years, visiting countries such as Russia and Poland to establish how they operate and what opportunities may exist. EU investment in Poland, for instance, has seen the country benefit from over €70bn of support in the 2014 to 2020 budgetary cycle. 

Darius McDermott, MD of Chelsea Financial Services, said: “Emerging markets have been performing well over the last year, but investments based on Eastern European stocks should come with a health warning. They may be cheap to invest in, compared to other regions, for a reason.

“Eastern Europe is not a stable place right now, in no small part due to the geopolitical situation. Investing in this region, which will be dominated by Russian, Polish and Turkish stocks, should be the reserve of investors willing to take on a high degree of risk.”