THE EASTERN EUROPEAN TRUST PLC
All information is at 28 March 2013 and unaudited.
Performance at month end with net income reinvested
One Three One Three *Since
Month Months Year Years 30.04.09
Share price -2.0% 3.6% -0.7% -4.1% 81.2%
Net asset value (undiluted) -4.3% 4.2% 4.0% -1.5% 83.7%
Net asset value (diluted) -3.7% 3.4% 1.9% -3.5% 79.9%
MSCI EM Europe 10/40(TR) -1.5% 4.5% 10.0% 4.9% 83.1%
Net asset value (undiluted) -4.3% -2.7% -1.2% -1.4% 88.2%
Net asset value (diluted) -3.6% -3.4% -3.2% -3.4% 84.4%
MSCI EM Europe 10/40(TR) -1.5% -2.4% 4.5% 5.0% 87.6%
Sources: BlackRock and Standard & Poor's Micropal
* BlackRock took over the investment management of the Company with effect from
1 May 2009.
At month end
Net asset value - capital only: 303.84p
Net asset value*** - cum income: 307.80p
Net asset value - cum income (diluted for
Subscription shares): 301.57p
Share price: 270.00p
2012 Subscription share price: 5.50p
Total assets^: £124.3m
Discount (share price to cum income NAV): 12.3%
Gross market exposure^^^: 108.1%
Net yield**: 1.5%
Ordinary shares in issue^^: 39,113,427
2012 Subscription shares: 8,533,028
**Based on a final dividend of 4.10p (6.50cents) per share in respect of the
year ended 31 January 2013.
***Includes year to date net revenue equal to 3.96p per share.
^Total assets include current year revenue.
^^Excluding 5,800,000 shares held in treasury. With effect from 9 April 2013
the Company's share capital consisted of 39,177,998 Ordinary shares (excluding
5,800,000 ordinary shares held in Treasury) and 8,468,457 subscription shares.
^^^ Long positions plus short positions as a percentage of net asset value.
Sector Analysis Net Assets(%)* Country Analysis Net Assets(%)*
Financials 34.0 Russia 62.8
Energy 28.7 Turkey 19.0
Telecommunications 12.2 Hungary 7.5
Materials 7.1 Poland 7.1
Consumer Staples 6.7 Czech Republic 4.6
Information Technology 5.0 Kazakhstan 2.2
Health Care 4.3 Austria 1.4
Industrials 4.1 Ukraine 1.2
Other 2.9 Turkmenistan 1.1
Consumer Discretionary 0.4
Total 106.9 Total 106.9
Short Positions -1.2 Short Positions -1.2
*reflects gross market exposure from contracts for difference (CFDs)
Ten Largest Equity Investments(in %orderof Total Market value)
Company Country of Risk Value %
Sberbank Russia 9.6
Gazprom Russia 8.6
Turkiye Garanti Bankasi Turkey 5.7
Mobile Telesystems Russia 5.4
Surgutneftegaz Russia 3.8
OTP Hungary 3.6
Mail Ru Russia 3.4
Turkcell Iletism Hizmet Turkey 3.2
Powszechna Kasa Oszczednosci Poland 3.0
Komercni Czech Republic 2.7
Commenting on the markets, Sam Vecht, representing the investment
In March, the MSCI Emerging Europe 10/40 index returned -1.5%. Only Turkey
managed to post a positive return over the month as sentiment in Emerging
Europe was negatively impacted once again by problems besetting the Eurozone.
On this occasion, Cyprus was the pressure point. While not large enough to be a
global problem, the precedent set in Cyprus of depositors 'bailing-in'
insolvent banks increased uncertainty.
Russia underperformed on concerns that the country's close financial ties with
Cyprus would affect businesses and individuals, however the vast majority of
the listed companies confirmed zero or negligible exposure.
Hungary was the weakest market in March over concerns surrounding the potential
for unconventional monetary policies to be implemented by the new head of the
central bank. Investors looked with concern to the extraordinary meeting of the
MPC at the beginning of April. In the event, the proposed 'funding for lending
scheme' was not viewed as a radical policy and was met by the market with a
Turkey was the strongest performer in March as investors focussed on dovish
central bank comments and the hope that improved relations with the Kurdish
minority would bring a peace dividend.
In March, the company's NAV fell by 4.3%, underperforming the benchmark by 2.8%
(in US dollar terms).
The Company benefitted from the overweight position in Russian hospital
operator, MDMG. The stock continued its run of strong performance as the new
Lapino hospital increased utilisation rates following its successful opening.
The Company also benefited from an overweight position in Russian Telco MTS,
which published healthy 2012 results as the competitive environment remained
benign, allowing investors to look forward to the upcoming dividend payout.
However, the positive contributors were more than outweighed by the detractors.
Performance was negatively impacted by the overweight position in Hungarian
bank OTP, which fell on the Hungarian concerns mentioned earlier.
Kazakh mining company ENRC was also a detractor in the month as the stock fell
to new lows following a strong start to the year. The 2012 results were not
especially eventful but there were concerns about materials demand from a
slowing Chinese economy and progress on restructuring at the company.
The underweight position in Turkey, and particularly in financial company,
Akbank, detracted from relative performance as Turkey continued to outperform
the rest of Emerging Europe.
Perhaps the most significant trend in both Emerging Markets and Emerging Europe
has been for expensive stocks to get even more expensive and lowly priced
stocks to get even cheaper. Believing as we do in buying low and selling high,
we do not believe the best interests of the portfolio would be served by
investing in a series of expensive companies, even if in the short term they
Positions in the Russian Internet sector were increased primarily by initiating
a new position in Yandex and adding to Mail.ru. Yandex has first mover
advantage in Russian search engines and is set to benefit from increasing
ecommerce traffic and contextual advertising.
The position in Russian oil pipeline company Transneft was reduced. The stock
has performed very well since the middle of 2012 on the back of increased
investor engagement, but further improvements to their governance practices
have been slow to appear.
Russian and Eastern European markets have significant long-term structural
advantages. They benefit from flexible and dynamic economies with undervalued
currencies and educated and skilled workforces, allowing the countries of the
region to remain competitive in a globalized market. That said, the region has
not been immune from sentiment stemming from the problems which have beset the
Eurozone. Action from the ECB has reduced systemic financial risk which has
been positive for all risk assets.
In Russia, the announcement that state-owned companies will return a target 25%
of profits to shareholders through dividends is positive. Private companies
have also followed suit, bringing dividend yields in Russia up to global
emerging market averages of circa 4% for the first time.
As economic problems have mounted in the more developed corners of Europe, the
Turkish economy continues to outperform. Recent developments include
sustainable annual GDP growth of 2.2%, significant increases in employment,
inflation at a 44year low and an S&P upgrade of Turkish foreign currency
The challenge for the Turkish central banks remains its management of monetary
policy as the economy begins to re-accelerate.
The prospects for Hungary have improved with the amelioration of systemic
financial risk in Europe. The economy is improving, at the margin, and Hungary
has accessed international bond markets for the first time in 20 months to
underpin the country's fiscal position. However, the key driver of markets
remains the fact that Emerging European stocks are exceptionally cheap,
universally disliked and widely misunderstood. As such, minor changes in
sentiment are able to have a meaningful impact on prices.
Although we still see upside for the region, we remain mindful of the risks
which could potentially emanate from three places; US, Europe or China.
The fortunes of global markets are still tied to varying degrees to the fate of
the US recovery which, although bumpy, is showing signs of increasing
robustness with rates of employment increasing and a return to health of the
housing market. Although progress has been made, the recovery could be blown
off course and that is a risk for all markets, not just those of Emerging
A slowdown in China has affected the demand for commodities, the prices of
which impact sentiment surrounding Russia, although this has been positive for
Turkey and central Europe who are commodity importers.
While recent measures to stabilise the Eurozone have been positive, the
developments in Cyprus serve as a reminder that the problems of the Eurozone
have yet to be fully resolved. It is important to remember that the economies
of emerging European markets typically have lower government budget deficits
and lower debt burdens.
Despite the attendant risks, valuations are still attractive and many of these
risks remain reflected (and more) in the price. The long-term outlook for
Emerging Europe is bright.
22 April 2013
Latest information is available by typing www.estplc.co.uk on the internet,
"BLRKINDEX" on Reuters, "BLRK" on Bloomberg or "8800" on Topic 3 (ICV
terminal). Neither the contents of the Manager's website nor the contents of
any website accessible from hyperlinks on the Manager's website (or any other
website) is incorporated into, or forms part of, this announcement.
-0- Apr/19/2013 15:40 GMT
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