Fund Profile

Barings Emerging EMEA Opportunities 05 December 2019

Disclaimer

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.

Overview
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Overview

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.

Analyst's 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 a 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
Continue to Portfolio

Fund History

27 Apr 2022 Finding value in a haystack
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...
23 Feb 2022 Regime change
Ahead of our spring conference, we ask whether investors need to junk their portfolios and start again…
26 Jan 2022 Fight or flight...
Two of our analysts debate the impact that war in Ukraine could have on investors' portfolios...
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...
29 Sep 2021 Fund Analysis
BEMO is a very different way to play the energy transition…
01 Sep 2021 Winter is coming
Summer was a welcome opportunity for exhausted investors to turn their backs on the legion threats they face, but they haven't gone away and the days grow short - we examine four in detail...
25 Aug 2021 Is the UK’s debt a ticking time bomb?
Our analyst argues Rishi is right to worry about government debt and borrowing…
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
BEMO is Barings Emerging Europe under a widened mandate offering greater alpha and dividend potential…
09 Dec 2020 A bumper harvest?
Agricultural and industrial commodities have rallied strongly, but what are the implications for emerging market allocations...?
13 Aug 2020 Underground bangers
We look for hidden gems in the smaller end of the investment trust universe...
24 Jun 2020 Fund Analysis
BEE’s portfolio’s cheap valuations and strong fundamentals make it a potential recovery play...
18 Jun 2020 Gimme shelter
As income investors brace for impact we ask which regions and trusts are less likely to cut their dividends in 2020…
29 Apr 2020 On solid ground
Our analysis of discounts highlights trusts which are likely to offer significantly less discount downside from the current level…
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
We examine how correlations between different emerging markets have evolved, and whether single country strategies could diversify returns going forward....
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 ...
01 May 2019 Sweet or sour?
Three months in, we check up on our list of discount opportunities...
13 Feb 2019 Sweet treats
Eight trusts with the potential for strong returns, currently sitting on unusual discounts...
06 Feb 2019 Income for the long haul
With 'ISA season' looming we identify investment trusts which offer long-term, dependable income streams for yield-hungry investors...
24 Dec 2018 Why did the chicken cross the road?
Because he was so bored of reading newspapers devoted entirely to Brexit he was hoping he’d be hit by a truck.
28 Nov 2018 Every cloud...
The endless grinding negativity of Brexit has driven investors away from Europe in scores, but some managers see rich pickings for those willing to take the risk...
10 Oct 2018 Information overload
Our analysis shows the long term case for emerging markets remains largely unaffected by much of the negative newsflow surrounding the sector...
09 Oct 2018 Fund Analysis
Baring Emerging Europe offers capital growth and a dividend yield from a unique portfolio of stocks in developing Europe...
30 May 2018 Forza Italia!
Recent weeks have seen Italy's rocky relationship with the EU thrust into the spotlight once again, but apart from fresh volatility - how much has really changed?
05 Apr 2018 The search for discounted yield
We scour the investment trust universe for trusts offering chunky yields on a discount...
29 Mar 2018 Fund Analysis
An unusual combination of high-alpha stockpicking, with a portfolio exhibiting strong growth credentials and decent dividend income
30 Nov 2017 Race ready?
We analyse the outlook for emerging markets and, in particular, the genuine active funds that focus on them…
27 Sep 2017 Fund Analysis
A differentiated equity growth offering a combination of capital growth and income generation from stcoks listed in countries such as Russia, Turkey and Poland...
View all

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