Multi-manager: How to maximise emerging Europe exposure

Three top multi-managers tell Joanna Faith which blend of funds they use to get access to emerging Europe following the sector’s resilient response to the financial crisis

Emerging Europe was one of the few winners of the recession thanks to the relatively resilient way it came through the biggest financial fallout since the Second World War. Some countries, Poland, for instance, managed to escape recession altogether.

Systematic risks in the region are continuing to reduce with improvements in transparency and political stability while growth is expected to increase. Countries such as the Czech Republic and Hungary are enjoying elevated foreign direct investment per capita.

The Hungarian and Czech Republic markets were two of the winners of the first half of 2011 rising 20.6% and 15.1% respectively between 1 January and 30 June 2011. Elsewhere, Russia bucked the BRIC losses trend, rising 4.9% compared with India’s 9.3%, Brazil’s 3.2% and China’s 0.8% reductions.

Here, three multi-managers reveal the blend of funds they use to get the best access to emerging Europe.

Mona Shah

Assistant fund manager of the Rathbone Enhanced Growth fund

Although we remain relatively cautious on world growth, at current valuation levels (Russia is trading at a 41% discount to GEMs on a P/E basis, for example), the region appears too cheap, and technical indicators currently suggest that it is oversold. We purchased the Baring Emerging Europe Investment Trust when the discount was relatively wide (at a 10% discount), as Barings has much experience investing in this region, and we prefer the more flexible mandate which allows the manager to allocate between Russia and Turkey.

These two countries have opposing structural drivers, resulting in greater diversification and thus offer investors a valuable hedge. Russia is a significant part of the benchmark (over 60%) and a country we have found it very difficult to allocate to in the past due to the lack of transparency and political intervention in the market – a common problem for investors.

We are currently looking at the Renaissance Emerging Europe Equity fund. Renaissance Asset Managers was founded in Moscow and has significant expertise in that region, and the manager, Plamen Monovski, has a very long track record in this space.