Fund Profile

Barings Emerging EMEA Opportunities 05 December 2019


Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Barings Emerging EMEA Opportunities. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

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Baring Emerging Europe (BEE) aims to generate long-term total returns from a disciplined bottom-up approach, selecting the most attractive companies in the currently attractively valued emerging Europe region. The benchmark, the MSCI EM Europe 10/40 Index, is dominated by Russia (59%), and BEE has outperformed thanks to strong returns in that country as it recovers from the recession in 2014 and 2015 (discussed further in the Performance section). Returns have been strong on a risk adjusted basis too thanks to the skill of the manager, and BEE has added the most alpha of any emerging markets trust over five years.

Russia has been benefiting from a secular change in dividend culture in the region. As well as benefiting total returns, this has been particularly welcome for BEE given the shift of dividend policy in 2014 that led to greater emphasis on shareholder payouts and gave the board the ability to pay out capital. The yield is currently 4.1%.

BEE trades on a discount of 9%, below its 11% one-year average. The trust has a tender provision that is triggered if either of two conditions are not met as of the 30 September 2020 - if performance or discount don’t match up to certain targets. This should help to control the discount.

Kepler View

BEE is the only closed-ended fund focused on emerging Europe after the wind up of BlackRock Emerging Europe in 2018. It is typical of the ironies of investing that shortly after that trust wound up the market went on a tear and BEE profited handsomely – NAV total returns are 28% in 2019 to date, with shareholders up 34%. As well as strong returns on the market, the trust has been benefiting from a disciplined investment process that has generated impressive levels of alpha in a highly volatile collection of markets with often unpredictable political situations. The relative inefficiency of the emerging Europe region gives us confidence that this level of alpha is repeatable.

While returns have been strong in Russia over the past few years we think it an interesting place to be investing at the moment. The valuation on the market is extremely cheap (discussed further in the Discount section). With improving corporate governance and potential in the domestic economy after a period of healthy oil revenues, should the global economy continue to expand, Russia could outperform, in our view. Poland and Turkey, meanwhile, offer diversification benefits to the major market in the index. Additionally, some downside protection is afforded to BEE shareholders, provided by the yield, which at 4.1% is comparable to the 3.9% average of the AIC UK Equity Income sector. The discount also represents some recompense for the risk, with the 2020 tender offer likely, we believe, to act as a lower limit.

Bull bear
An exceptional alpha-generation track record among emerging market trusts A volatile region with the potential for political turmoil
An attractive yield with the ability to maintain income payments from capital Exposure to the oil price, which can be unpredictable
An attractive discount with a tender offer offering downside protection
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Fund History

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Non-income value strategies are becoming increasingly scarce, but the holdouts represent attractive near-term opportunities…
25 Mar 2022 Slides and Audio: Barings Emerging EMEA Opportunities
Download the presentation and listen to the audio from our 'Ideas for your ISA' virtual Spring event on 16 March...
23 Mar 2022 Fifteen ideas for your ISA
Slides and audio from our event last week, featuring fund managers running money in every major market in the world...
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22 Dec 2021 No humbug
Our analysts look back at a year of predictions, theories and ideas, and highlight those they think could matter most…
08 Dec 2021 Results analysis: Barings Emerging EMEA Opportunities
BEMO has outperformed its benchmark and the emerging markets index in a barnstorming year for EMEA…
13 Oct 2021 Beyond the Middle Kingdom
As momentum falters in the emerging markets powerhouse, we examine the options for investors outside China...
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28 May 2021 Results analysis: Barings Emerging EMEA Opportunities
Reporting results for the six months ending 31 March 2021, BEMO outlined the early success of the broadened investment strategy…
10 Mar 2021 Spring Conference '21
Audio and presentations from 21 of the UK’s leading investment trust managers…
04 Mar 2021 Slides and Audio: Barings Emerging EMEA Opportunities
Download the presentation and listen to the audio from our 'Ideas for your ISA' Spring Conference on 02 March...
24 Feb 2021 Fund Analysis
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24 Jun 2020 Fund Analysis
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29 Apr 2020 On solid ground
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18 Mar 2020 Their darkest hour?
We update our shortlist of discount opportunities...
16 Jan 2020 Drifting apart: how emerging markets have become less correlated
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05 Dec 2019 Fund Analysis
BEE invests in strikingly cheap markets and has a strong track record of alpha and dividend generation…
06 Nov 2019 Times are a changin'? The case for a value resurgence
We are in the midst of the longest period of value underperformance since the 1920s. Could we be approaching a change in environment?
14 May 2019 Fund Analysis
Baring Emerging Europe offers a high dividend yield of 4.5% from its unique focus on a cheaply valued region ...
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10 Oct 2018 Information overload
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09 Oct 2018 Fund Analysis
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22 Mar 2018 Fund Analysis
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30 Nov 2017 Race ready
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