Eng Est

Entrepreneurial Investment Managers

Monthly Overview

New Europe Equities Move Sideways as Economic Sentiment Improves

New European regional equities saw little change in November as the wider Stoxx EU Enlarged TR index slipped 0.5% during the month. Trigon New Europe Fund gained 1.4% during the month and is up 3.2% YTD, slightly ahead of the benchmark index, which has gained 2.5% in 2014. In 3- and 5-year terms, the Fund is up by 59.2% and 82.0%, outperforming the Index by 31.4 and 72.3 percentage points, respectively. The Fund has achieved this superior performance with considerably lower volatility.

In November, all major regional economies published 3Q GDP figures that were ahead of the consensus estimates. The Polish, Romanian and Hungarian economies all grew over 3%. Similarly, the PMI figures were encouraging and improved m-o-m for all CEE-3 countries. The Polish PMI improved from 51.2 in October to 53.2 in November while Czech showed an impressive 55.6 (from 54.4) and Hungary improved to 55.1 (from 54.0). All these figures indicate that, if anything, the 4Q growth figures may again surprise on the positive side. The recent weakness in energy prices is also a supportive factor as all New European economies are energy importers. In terms of stock picks in Trigon New Europe Fund, we continue to favour regional banks, where we see the provisioning of pre-financial crisis loans coming to an end and where the loan books have, in our view, improved very significantly since. This has not been appreciated by the markets yet, as banks continue to trade at a steep discount to their EM peers as well as to their own historical averages. Local banks fared also well above expectations in ECB stress tests and asset quality reviews. Once the old loans are fully provisioned, we expect to see a major improvement in local banks’ profitability

Overall the year has seen mixed investor sentiment for the region with Russia-Ukraine conflict and 2H 2014 weakness in German manufacturing figures holding back inflows into cheap regional equities. On the positive side, all of the regional economies have shown strong resilience to this and proved their limited exposure to Russia. This has led to a situation where equities have moved sideways through the year while underlying economies have continued to improve. As global equities in general have had a good year, the under-owned New Europe has become even more attractive compared to other global equity markets. Trigon New Europe Fund’s weighted average portfolio estimates for 2015 are as follows: dividend yield 5.6%, P/E 9.9x, ROE 11%, and P/B 1.1x (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.