Eng Est

Entrepreneurial Investment Managers

Monthly Overview

Europe Equities Move Sideways as Economic Growth Surprises on the Upside

New European equity markets witnessed a mixed picture in June. While Poland as the region’s largest market moved sideways (WIG index -0.7% in euro terms), Romanian equities rebounded strongly with local BET index up 5.4% for the month. In contrast, Hungarian equities slid 5.5% and Serbian market lost 3.0% (in euro terms). The worst performer in June was Bulgarian market where local banks took state aid and as the equity market plunged 8.9% in June (Trigon New Europe Fund does not have any exposure to these banks). While the situation has stabilized since, Bulgarian market remains 6.5% below its end of May level as of July 4. Overall, the region’s benchmark Stoxx EU Enlarged TR index slid 0.7% in June. Trigon New Europe Fund fared better as it ended the month with a gain of 0.4%. YTD the Fund is up 6.2% vs 2.4% for the benchmark. In 3- and 5-year terms the Fund is up by 39.5% and 139.3%, outperforming the Stoxx EU Enlarged TR index by 45.9 and 96.8 percentage points, respectively. The Fund has also showed consistently lower volatility than its benchmark index.

We continued to overweight Romania and Slovenia whilst considerably underweighting Poland in Trigon New Europe Fund portfolio. All three bets have worked out reasonably well YTD as Romanian and especially Slovenian equities have significantly outperformed Polish companies. We have started to trim our Slovenian positions as the market has rallied over 25% YTD. We are also gradually seeing more value in Polish midcap names, which we have largely avoided over the past 6-9 months due to ongoing pension reform and the potential overhang in case Polish pension funds become net sellers in local SME names in order to diversify their portfolios (which they could not do previously due to legislation). In terms of sectors, we continue to like select regional blue chip banks as we think that the high loan provisioning they have witnessed over the past 3-5 years are likely to fall as the economies rebound and as the banks work their way through the problematic loans issued before the 2008 financial crisis.

In terms of economic growth, most Eastern European markets came out with 1Q GDP figures that were considerably above the consensus estimates. All larger regional economies grew between 2.9 to 3.8% in 1Q, a number that far exceeded the Eurozone growth of 0.9% in 1Q. Going forward, we expect the growth figures to slow somewhat in 2Q as the Ukraine-Russia crisis delayed trading with and shipments to these countries. Overall, we expect 2014 growth figures to remain very solid and above the current consensus estimates. As the Ukrainian crisis has been calming and as Western Europe continues its slow recovery, the New European economies are again on track to significantly outgrow their Western peers and act as a leveraged play on wider European recovery.

Past performance of the fund does not guarantee or indicate future performance of the fund. More detailed data about the performance of the funds in different time periods is shown in the monthly factsheets. The value of the fund units may increase and decrease over time, therefore there is no guarantee that the investors get back the amount invested in the fund. The risk factors of the fund are described in further detail in the prospectus of the fund.