BlackRock Emerging Europe beat its benchmark by 6.4% in US dollar terms over the year to 31 January 2017. The net asset value per share increased by 38.2% in US Dollar terms (55.8% in Sterling terms) which compared favourably with the MSCI Emerging Europe 10-40 Index return of 31.8% in US Dollar terms (48.6% in Sterling terms). The share price increased by 39.6% in US Dollar terms (57.4% in Sterling terms). The board declared a dividend of 7.50 cents per share (2016: nil).
The manager says that the largest contributions to relative performance continued to come from positions that are not represented in the benchmark, highlighting the opportunities that exist beyond the index stocks. Strong off benchmark performers included Russian utility Inter RAO which rose by 276% over the period after strong results and the sale of non-core assets. MD Medical Group, a Russian healthcare provider, performed well (+177%) on strong margins and continued domestic expansion supported by the Russian consumer. Globaltrans, Russia’s leading private freight rail transportation, contributed positively as it benefited from rising transportation tariffs in Russia. Ferrexpo, a Ukrainian iron ore producer, also experienced strong returns on the back of recovering iron ore pricing and demonstrating that it can meet its debt obligations.
In Poland, they added to performance through selective stock selection. Metals and mining company KGHM performed well, first through rationalising its international capex spend and then benefiting from the rally in silver and copper prices in the second half of the year. Our underweight in Bank Pekao also added to relative performance. Given the weak balance sheet of Pekao’s main shareholder, they avoided the stock on concerns that the asset would be sold, an event which later came to pass.
Stock selection in Turkey and Greece detracted from performance. The ongoing political concerns in Turkey and the subsequent weakening of the Turkish Lira weighed on our positions in Halk Bank and Turkiye Sinai Kalkilma Bank (TSKB). Furthermore, an overweight in the Coca-Cola bottling franchise company, Coca-Cola Icecek, detracted from returns as the company’s operations were negatively impacted by the currency weakness.
In Greece, despite a strong start to the period on the successful completion of the First Review, the banks never fully recovered from the Brexit vote and positions in Alpha Bank and National Bank of Greece detracted from performance.
BEEP : BlackRock European Emerging outperforms on good stock selection in Russia