Eng Est

Entrepreneurial Investment Managers

Monthly Overview

New European Equities Decline in Volatile October

After a remarkably strong performance in September, New Europe equity indices saw a correction in October, amid the spike in volatility throughout global markets. The wider Stoxx EU Enlarged TR Index declined 3.5% during the month, while Trigon New Europe Fund fared better by retreating 2.2%. The Fund is up 1.8% YTD, while its benchmark index has gained 3.0% in 2014. In 3- and 5-year terms, the Fund is up by 54.1% and 79.3%, outperforming the Index by 33.4 and 67.1 percentage points, respectively. The Fund continues to achieve this superior performance with considerably lower volatility.

The most significant news in October was the ECB stress test and Asset Quality Review, which were published towards the end of the month. The market appeared positioned for negative outcomes, particularly on banks active through the CEE region, but the New European banking sector came out very strong through the ECB tests. All of our portfolio banks passed the tests with healthy margins and showed that they can withstand the ECB’s "adverse macro scenario” with their current capital base. This supports our investment thesis that the CEE banks have, to a large extent, chewed through their bad loans that originated before the financial crisis. We expect the provisioning and cost of risk to fall for most of regional banks in the coming 12-24 months and we are positioned accordingly. The Fund currently has just over 35% of banking exposure, which is significantly higher than our multi-year average.

On macro news, all three larger CEE countries published encouraging PMI numbers in October, indicating that their manufacturing output is still clearly growing, in spite of recent weakness in Germany and continued political concerns related to the Ukraine-Russia conflict. We also note that recent indicators of domestic demand continue to improve on the back of rising real wages and falling unemployment. Our weighted average portfolio valuation estimates for 2014 are as follows: dividend yield 3.9%, P/E 13.3x, ROE 10%, and P/B 1.2x (latest).

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.