BlackRock Emerging Europe’s net asset value per share fell by 10.1% in US Dollar terms (4.8% in sterling terms) over the year to the end of January 2016 which compared favourably with the benchmark net return of -14.2% in US Dollar terms (-9.1% in sterling terms). The share price fell by 9.9% (-4.6% in sterling terms) which was broadly in line with the performance of the NAV per share. The company’s benchmark, the MSCI Emerging Europe 10-40 Index returned -14.2%, outperforming global emerging markets which returned -23.0%. The share price fell by 9.9% (-4.6% in sterling terms) which was broadly in line with the performance of the NAV per share. compared to the Morningstar peer group of funds investing in Emerging Europe equity, over the year to 31 January 2016 the company was ranked 14/44 in NAV terms and over 3 and 5 years was ranked 5/44 and 7/43 respectively.
Chris Colunga has joined the portfolio management team. He will be appointed co-manager alongside Sam Vecht. Chris has extensive experience of the region both as an analyst and portfolio manager, most recently at Charlemagne Capital. Chris replaces David Reid who is changing roles at BlackRock.
The report says some of the best contributions to relative performance came from positions in the technology sector such as IT service provider, Luxoft and leading Russian social media platform, Mail.Ru. The technology sector is not represented in the benchmark, highlighting the opportunities that exist beyond the index stocks. The company’s investment strategy is designed to capture undervalued stocks with exposure to emerging Europe and positive prospects, regardless of benchmark weights.
Investments beyond the benchmark countries, in places such as Turkmenistan and Romania, also contributed positively to performance.
In Turkmenistan, oil exploration and production company Dragon Oil, performed well. Dragon Oil’s parent company, ENOC, made an offer in June to buy the shares in the company which it did not already own at a premium to the pre-existing market price. This was a reflection of the strong progress Dragon had made in terms of growing production and cash flow generation together with its inexpensive valuation. Dragon Oil had been one of the more significant positions in the portfolio for some time, possessing many of the qualities they like to see in an investment, and it was satisfying to see a rewarding conclusion.
In Romania, the banking sector has benefitted from entering a new credit cycle as the economy has improved, with higher loan growth and lower cost of bad debt. This was confirmed just after the end of the reporting period as Romanian bank BRD Groupe Société Générale delivered strong 2015 results. The favourable economic conditions helped the bank to report a doubling of year on year profits, outpacing its peers across the region.
Despite the turbulence in Greece, the Company generated positive relative performance over the period from the country. The Company was invested in Motor Oil, one of Europe’s most advanced refineries, which benefitted from a strong refining environment and traded very inexpensively during the Greek bailout negotiations despite having little reliance on the Greek economic situation and generating good cash flow. The stock was one of the best performers in the region, rallying almost 90% in US dollar terms from its low point at the start of the reporting period.
The Company’s exposure to Turkey detracted from performance over the year. Despite the economic tailwind from lower oil prices, investors were concerned about domestic political developments ahead of parliamentary elections. This particularly affected state-owned Halk Bank, which sold-off as a result, hurting relative performance. Halk Bank did however announce financial results after the end of the reporting period which were better than consensus
expectations.
BEEP : Technology bets help BlackRock Emerging Europe in difficult year