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 Sterling: 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% US Dollars: 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. Benchmark 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 Utilities 1.5 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) Total Market 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 Manager noted; Market performance 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 muted response. 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. Portfolio performance 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 have outperformed Activity 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. Market Outlook 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 sovereign debt. 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 Europe. 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 ENDS 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
THE EASTERN EUROPEAN TRUST PLC: Portfolio Update
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