Schroders turns to Emerging Europe for superior returns

Schroders sees compelling investment opportunities in Emerging Europe, which has remained strong in the face of the Eurozone crisis.

The firm points to the MSCI EM Emerging Europe 10/40 Net index, which has increased in value by 11.4% on average per year in the last three years.

This strong performance comes despite the relatively close geographical location of some of the smaller markets to the Eurozone, such as Hungary, Poland and the Czech Republic, which together stand for approximately 23% of the index.

This year to date, the MSCI Emerging Markets Europe index is up 13%, comfortably beating MSCI Europe, which is only up 9.33% year to date.

It is worth noting that the MSCI Eastern Europe index, which comprises the Czech Republic, Hungary, Poland and Russia, is only up 8% YTD.

The only difference between the two indices is Turkey, which is included in the Emerging Europe index, but not in the Eastern Europe mix.

Thus, it seems to be Turkey that is delivering most of the outperformance relative to continental European peers, as well as other emerging markets (the MSCI Emerging Markets index is up around 8.5% YTD).

Schroders considers Turkey one of the most attractive countries in the region. It also looks to Egypt, Kazakhstan and Georgia for compelling stock-specific opportunities.

Allan Conway, Schroders’ head of global emerging market equities, says: “We take a broad definition of EM Europe which includes Russia, Turkey and Egypt and even some frontier markets such as Kazakhstan and Georgia. This diversification has allowed the strategy to achieve consistently excellent returns.”

The Schroder International Selection Emerging Europe fund has returned 13.8% a year over the past three years and is in the first quartile across all time periods (one to five years) to August 31.

Over three years, the fund has been the best performer in the Morningstar Emerging Europe peer group, which comprises over 90 managers.

Schroders is not the only European manager to pick up on this growth trend. ING Investment Management, for example, also sees a sustainable growth story in Emerging Europe.

The asset manager, based in The Hague, is confident that emerging European countries, despite their regional differences, are in a position to benefit from regulatory enhancements, economic liberalisation and privatization initiatives.

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