Eng Est

Entrepreneurial Investment Managers

Monthly Overview

New Europe Equities Gain in August, All Attention Still on Ukraine

Most CEE equity markets finished August in positive territory as investors continued to assess the potential spill-over effect the region might have from Ukraine-Russia conflict and the sanctions that the EU and Russia have imposed on each other. Even though CEE is still often perceived as a part of the ’eastern block’, the region’s trade and economic ties with Russia is fairly small. Today, all larger CEE economies (Poland, Czech Republic, Hungary, and Romania) are much more dependent on Germany’s economy as they have, over the past two decades, linked their industry to Western European supply chain.

Trigon New Europe Fund was up 2.3% in August vs. 2.8% for the Stoxx EU Enlarged TR benchmark index. YTD the Fund is up 3.5%, outperforming the benchmark, which has gained 1.1%. In 3- and 5-year terms, the Fund is up by 50.4% and 85.4%, outperforming the Index by 41.0 and 74.6 percentage points, respectively. The Fund has achieved this superior performance with considerably lower volatility. We continue to overweight Romania, where we see both strong growth and attractively valued equities. We have continued to underweight Polish equities, particularly the SME sector, in which the local pension funds have taken large positions over the past years. As a result of the Polish pension fund reform, the local funds are likely to be net sellers of local equities as they are now allowed to diversify their portfolios outside of Poland (previously the maximum allowed foreign asset exposure was at 5%) and as the net inflows into private pension funds will be very close to zero. We expect this to support the narrowing of premiums at which Polish equities have been trading to their regional peers over the past years.

In terms of sector allocation, we continue to favour companies with strong operational cash flow, clearly communicated dividend policy and which have previously offered very good downside protection in a volatile environment. We have also increased our blue chip weight in the Fund as we see the liquid names to have the immediate potential to rebound should the tensions in Ukraine ease. We saw an example of this in the first days of September when the news on potential peace deal between Russia and Ukraine were published. Large CEE banks reacted immediately with an intraday relief rally of 5-10%. Overall, the current volatile environment has allowed us to shift the portfolio around and pick up a number of companies that have taken a 20-30% beating for little fundamental reason. This leaves us in a position where we would be able to benefit from a potential relief rally whilst not increasing the portfolio’s risk level in order to do so.

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.