Emerging Europe has faced a torrid time over the past year. The falling oil price has pushed down company earnings for those involved with exporting oil and the political unrest between Russia and Ukraine has also negatively impacted share prices.
Colin Croft, manager of the Jupiter Emerging European Opportunities Fund, is positive on the future prospects for emerging European equities, particularly those in Russia where around half of the fund is currently invested.
The manager expects a rebound in the oil price. In his view, if the oil price were to sustain its current low level, supply cuts would inevitably occur which would cause the price to rise. Historically, Russian stocks have rebounded strongly when the oil price recovers from a steep fall and he has recently increased exposure to this area. However, the Russian economy is expected to contract this year. As such, he seeks businesses he feels are in a strong position to grow regardless of the issues facing the wider economy, with key attributes such as a strong brand and predictable profits. A company the manager feels currently meets these criteria is food retailer, Magnit.
The manager also seeks these attributes in companies outside of Russia. He is currently positive on Ülker, a Turkish biscuit maker which is a market leading company within the consumer sector with a strong and highly recognisable brand. Colin Croft also favours dividend-paying companies with the scope to increase their payments over time such as Czech bank, Komerční, which currently yields 5% (variable and not guaranteed).
Elsewhere, the manager has reduced exposure to Turkish banks as they have performed well over the past year and he does not expect share prices to continue climbing at the same rate.
The fund operates a concentrated portfolio which allows each holding to have a significant impact on performance. This concentration along with allocation to higher-risk smaller companies and exposure to emerging markets can increase risk so a long investment horizon is required.
Our view on this fund
Colin Croft assumed the role of lead manager in January this year, having co-managed the fund since January 2010. While he has been involved with the fund since March 2008, his track record is short and he is relative inexperienced. We would like to monitor his performance further before considering the fund for inclusion on the Wealth 150 list of our favourite funds across the major sectors.
Please note the fund's charges can be taken from capital, which can increase the yield but reduces the potential for capital growth.