Eng Est

Entrepreneurial Investment Managers

Monthly Overview

New European Equities Gain in September on the Back of Positive Macro News

New Europe equities advanced in September, contrary to the general weakening trend in the Emerging Markets. The wider Stoxx EU Enlarged TR index gained 5.6% in September, strongly outperforming the MSCI EM index, which lost 3.8% in euro terms. Trigon New Europe Fund also finished the month in a positive territory, but showed considerable underperformance (0.5% return) against the benchmark index (5.6% return). Regional markets presented a mixed picture in September as most markets showed either a small decline (Baltics, Bulgaria) or slight gain (Romania, Hungary, Czech Republic) and the stand-out performer was Poland. The region’s largest market rallied 6.5% as various non-fundamental events coincided. End of September is the most significant performance measuring date for Polish pension funds, as it is also a date when the flow-driven indices are rebalanced. This resulted in a very sharp rally of Polish equities with little support from company or macro-based news flow. We remain underweight in Polish equities as we continue to believe that their premium to other regional equities is, in most cases, not fundamentally justified and as other regional economies offer often both better risk-reward on a company level as well as a stronger macro picture.

In September, the PMIs of CEE-3 economies came out and surprised positively. While Western European economies have recently been in a weak patch, the CEE-3 have continued to show strength, particularly in terms of their export orders. All three economies are now expected to grow 2.7-3.5% in 2014 and the growth perspectives have been, if anything, upgraded recently. This shows again that while the Ukraine-Russia crisis has had a negative impact on investor sentiment, the regional economies have not materially suffered from the Russian sanctions or sinking Ukrainian economy. In our New Europe strategy, we continue to overweight Romania where we see both attractive valuations as well as strong economic growth. We also like selected pan-regional banks that have been sold off considerably YTD. We continue to expect a declining cost of risk in the next 12-24 months and expect the banks to lower their provisions as they work their way through the problematic loans that were issued before the financial crisis. Poland continues to be our largest underweighted market as we see flow-driven risks to its equities and because we do not think that its premium compared to other regional indices is well justified.

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.