Report Release Date: 15 Apr 2010
Analyst: Marzena Lange
Morningstar Opinion
This fund has defensive qualities in a very risky asset class.
Indeed, Eastern Europe is a volatile region in which to invest. In 2008, this fund lost almost 64%, only to gain back more than 83% a year later. In the last five years, the fund ranked among the best 13% of funds in the Morningstar Emerging Europe Equity category. Investors can expect this fund to ply a more cautious approach relative to other Eastern Europe funds.
Marcin Fiejka has been managing this fund since May 2005. He has 12 years' experience investing in Eastern European stocks. We also like that he is supported by a large network of emerging-markets analysts and specialists at Pioneer, some of which are based in Central and Eastern Europe. Fiejka also uses input from global sector analysts.
Fiejka prefers firms whose development and success depends primarily on the entrepreneurial qualities of their management team. Thus, he avoids stocks where macroeconomic trends play a large role and where global investors, depending on their risk appetite, trade in and out quickly ("hot money"). The global sector analysts' perspectives help here. For this reason, Fiejka prefers to invest in smaller companies that are attuned to domestic demand and consumers, such as the Russian retail chain X5. In addition, even though the team uses a fundamental approach to pick stocks, the fund will be heavily influenced by sentiment in the Eastern European markets, which in turn are strongly driven by developments in Russia and oil price movements.
Although there is a high proportion of smaller-cap stocks, which increase the fund's risk, it is less volatile than category peers. There are several reasons for this. Firstly, it is less exposed to the large movement of hot money. Secondly, the portfolio is a result of good, conservative stock analysis by the manager. In the last three years, Eastern Europe funds with a high allocation to smaller-cap stocks did not necessarily outperform category peers. Again, the fund's success in this area owes to good analysis. Stocks are chosen using a fundamental, bottom up approach that can be described as growth at a reasonable price. Meetings with company management play an important role in the process.
At the same time, top-down analysis is used for country allocation. This is particularly important for emerging markets as the macroeconomic and political environment has a great influence on companies' development. In 2008, Fiejka invested much more in Israel than his peers and he currently has a larger allocation to Turkey. He has a relatively long holding period. The portfolio turnover rate is currently a third, which is lower than usual for an Eastern Europe fund.
In general, we like this fund's well-thought-out process, which leads to relatively stable outperformance with lower risk. Within its volatile category, we rate the fund Superior.
*The above returns are in EUR terms.
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