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Fund Profile

Barings Emerging EMEA Opportunities 24 June 2020


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 strong total returns – latterly with a substantial contribution from dividends – by investing in emerging European equities. In practice this means Russia, Poland and Turkey, which together make up almost 90% of the MSCI Emerging Markets Europe 10/40 benchmark.

Manager Matthias Siller has a strong track record of alpha generation, with the trust being in the top quartile of emerging market trusts for alpha and Sharpe ratio, as we discuss in the Performance section.

Absolute performance has been strong in recent years as the Russian market has generated strong returns thanks to the recovery from the 2014 recession and improving corporate governance. This has supported rising payout ratios which have helped BEE generate a significant yield, now 5.3% on a historical basis.

The board has paid more attention to dividends since 2016, when it committed to paying up to 1% of NAV from capital to support the payout if necessary. This gives the board flexibility to make up for any decline in earnings thanks to the current pandemic, although we note that the dividend was fully covered by earnings last year.

Medically and economically, emerging Europe has coped relatively well with the crisis, although falls in currency have exacerbated modest declines in equities measured in local currencies. Matthias tells us the low levels of government, corporate and household debt give the region good prospects if the current recovery continues.

The trust trades on a discount of 12.6%, with an active buy-back policy and a possible 25% tender vote following the end of the financial year in September (see the Discount section).

Analyst's View

Emerging Europe is a relatively little-owned region, but has much to offer investors in emerging markets or in developed Europe. Such high dividend yields are hard to find in developed Europe, and may become harder thanks to the impact of the coronavirus crisis. Meanwhile the region is much cheaper than the North Asian countries which dominate the mainstream emerging-market funds (the benchmark’s P/E is just 7.6 times, compared to 14 times for the MSCI All China Index).

Improving corporate governance and dollar earnings mean that Russian corporates in particular are highly cash-generative, and having been through numerous crises in recent years have strong balance sheets. This should bode well as long as the current recovery continues. Recent market declines have a significant currency component to them, which adds to the value proposition, as does BEE’s discount.

As we discuss in the Dividend section, BEE also has flexibility with regards to its dividend. The ability to pay up to 1% of NAV from capital gives the board the ability to offset at least some of any reduction in earnings which the pandemic causes this year. Despite the strong returns in recent years, the cheap valuations and strong fundamentals in its markets make BEE an interesting recovery play, with manager Matthias Siller’s strong track record of generating alpha a bonus.

bull bear
Strong track record of alpha generation versus the benchmark Small size of trust decreases liquidity of shares
High yield from a portfolio suffering a relatively limited impact from the coronavirus on earnings Universe is dominated by Russia, which can be volatile thanks to politics, energy and international relations
Cheap underlying markets with cheap currencies and low debt levels which could be geared to a global economic recovery Board and manager have indicated the likelihood of broadening the investment universe to include 15% in other markets, but the timing is unclear
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Fund History

16 May 2024 Fund Analysis
BEMO has had a strong year, and offers multiple layers of value…
20 Sep 2023 Five questions about emerging markets
We track key developments in the diverse emerging markets universe…
06 Apr 2023 Fund Analysis
BEMO aims to provide capital growth and an attractive level of income via investments across emerging Europe, the Middle East and Africa...
15 Sep 2022 Same same but different
We discuss the case for emerging markets at different stages of development…
29 Jul 2022 Fund Analysis
BEMO offers exposure to both sides of the energy transition…
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?
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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...
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