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East Capital Balkans

East Capital Balkans

NAV

23.04 EUR

1 day

+1.81%

YTD

+24.36%

Date

2024-12-02

Sustainability

Article 8

NAV

37.34 SEK

1 day

+2.02%

YTD

+28.87%

Date

2024-12-02

Sustainability

Article 8

NAV

26.37 EUR

1 day

+1.82%

YTD

+25.09%

Date

2024-12-02

Sustainability

Article 8

East Capital Balkans mainly invests in shares of companies in Greece, Romania, Turkey and Slovenia. As market conditions change, the fund may also invest in other countries in the region such as Bosnia and Macedonia.

The fund’s strategy is to invest in companies that benefit from long-term development trends such as EU convergence, growth in domestic consumption and investment in markets that are in an early phase of transition. The fund has an all-cap mandate and actively seeks exposure to smaller companies. The fund can have up to 10% of its net asset value invested in a single issuer, with most holdings being under 5%. The fund has a low turnover rate.

The investment style is based on a long-term perspective, fundamental analysis and active stock-picking, combining growth with value.

The Balkans fund experienced a slight decline of 1.39% in the third quarter of 2024. This quarter proved to be more volatile than usual, with weaknesses in Turkey largely balanced by strengths in Greece. Concerns over high interest rates impacting the corporate sector led to a sharp drop of 17.6% in the Turkish market, while Greece saw broad-based gains, with our Greek holdings gaining 10.9%.

In mid-July, market sentiment in Turkey shifted dramatically from euphoric to bearish. While our Turkish holdings declined by 17.6% in the third quarter, they still posted a solid year-to-date performance of 21%. Several factors contributed to this downturn: challenging quarterly financial reports stemming from a new hyperinflation accounting standard, high interest rates squeezing corporate profitability, retail investors shifting to deposits for better returns, and escalating tensions in the Middle East. Although we were aware of these risks, the speed of the market's decline came as a surprise. On a positive note, these negative trends may be temporary; the first interest-rate cuts are anticipated in Q4 2024 or Q1 2025, which should bolster EPS growth. Additionally, as inflation decreases from 49% in September into the 30s by Q1 2025, the effects of hyperinflation accounting on financials should lessen, while the Middle Eastern tensions and retail investor shifts are unlikely to impact fundamental company performance.

The September CPI in Turkey, typically one of the highest inflation months, printed at 3% month-on-month, much higher than the expected 2.2%. This indicates that the disinflation narrative may be drifting towards the mid-40s percent inflation rates rather than the anticipated low 40s. However, given the central bank's hawkish stance, this disinflation thesis remains intact, having only drifted, not derailed. Given that market forces and macroeconomic conditions are just as important drivers of stock performance, we have adjusted our portfolio to favour more defensive inflation-proof positions, such as Enerjisa, and highly discounted opportunities like the compounding SaaS company, Logo Yazilim.

In Greece, we increased our position during the quarter, and it now constitutes 39% of our portfolio. Overall, our Greek holdings returned 10.9%, matching the market’s performance, with contributions from a variety of sectors. The standout performer was Titan Cement, which surged by 26.6% following plans to list its US operations—accounting for 60% of EBITDA—on a US stock exchange, where cement producers have valuations of up to double those in Europe. This success has created a positive feedback loop, pushing Titan Cement’s market capitalisation above USD 2.4 billion, qualifying it for inclusion in the MSCI standard index for Greece

Macroeconomic indicators in Greece signal a continuously improving economy. GDP grew by 2.3% year-on-year in Q2 2024, bolstered by a robust tourism season, which saw revenues rise by 12% in the first half of the year. Meanwhile, unemployment improved to 9.5% in August 2024, and the government reported a primary budget surplus of 2.1% of GDP. Greece’s ability to expand its economy while simultaneously achieving budget surpluses is no small feat seen in the context of the large deficits in the larger European economies. International macroeconomic forecasters are forecasting GDP growth to settle below 2% after 2024. However, investment growth should continue to grow 4 to 6 times faster, meaning that Greek banks still provide appealing growth prospects, with valuations discounted 20-40% on Italian and Spanish peers. Furthermore, Greek banks aim to pay 40-50% of their profits as dividends from 2025 profits, meaning that dividend yields will reach between 9 and 12%. Given that dividends are unlikely to decline, the cumulative yields that an investor in Greek banks will collect over the year are outstanding. 

In Romania, our holdings increased by 2.9% over the quarter, slightly outperforming the market. However, macroeconomic vulnerabilities have become more evident. While the budget deficit has decreased to 8.3% of GDP, fiscal expansion has not spurred GDP growth, which rose only 0.8% year-on-year in Q2 2024 - well below the expected 2-3%. Despite strong consumer spending, the manufacturing sector is facing weak demand from Europe, which is weighing on GDP growth. Inflation remains the highest in the Eurozone, recorded at 5.4% in July. On a positive note, GDP suppressing fiscal consolidation is not anticipated until next year and is expected to be offset by the usage of the Recovery and Resilience Facility (RRF) funds and a rebound in European consumption. 

Looking forward, the East Capital Balkans fund provides a unique mix of growth, value and yield and we continue to see the fundamentals of the region as particularly attractive. Furthermore, in Turkey and to a lesser extent Romania, the sheer number of investable stocks and the variety of sectors have increased in the past year, so the opportunity set in the Balkans has never been better.

The Balkans fund continues trading at very attractive valuations of 5.5x 2025e EV/EBITDA and 6.2x 2025e P/E, expecting a 21% EPS growth and 20% EBITDA growth in 2025 after a strong 2024. The fund also has an attractive FCF yield of 5.1% 4.5% dividend yield expected in 2025.  

 

Performance in USD net of fees.

This publication is not directed at you if we are prohibited by any law in any jurisdiction from making this information available to you and is not intended for any use that would be contrary to local laws or regulations. Every effort has been made to ensure the accuracy of the information, but it may be based on unaudited or unverified figures or sources. The information should not be used as the sole basis for an investment. Please read the Prospectus and the KID, which are available on the fund page.

East Capital Balkans Winner Of 2024 Lipper Fund Award (Europe) 615X405

East Capital Balkans - Winner of 2024 Lipper Fund Award (Europe)

We are delighted to announce that the East Capital Balkans fund has received the prestigious Lipper Fund Award for Europe 2024, recognising the exceptional performance of the fund over the past five years.

Geographical Split

Sector Allocation

Largest Holdings

Fund facts

Fund

East Capital Balkans A EUR

ISIN

LU0332316016

Launch date

2014-04-10

Domicile

Luxembourg

Morningstar Rating™ (Total rating)

3

Yearly fee

2.41%

Management fee

1.90%

Benchmark

-

Fund

East Capital Balkans A1 SEK

ISIN

LU1941809938

Launch date

2022-03-31

Domicile

Luxembourg

Morningstar Rating™ (Total rating)

3

Yearly fee

2.39%

Management fee

1.90%

Benchmark

-

Fund

East Capital Balkans R EUR

ISIN

LU0972918535

Launch date

2013-09-30

Domicile

Luxembourg

Morningstar Rating™ (Total rating)

4

Yearly fee

1.76%

Management fee

1.50%

Benchmark

-

Risk indicator

Funds with risk class 6-7 can have sharp decreases or increases in value.

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More information

Reporting of the fund's historical returns does not consider inflation.

Past performance of the A SEK share class prior to 1 October 2013 relates to the Swedish registered fund East Capital Balkans, which from 1 October 2013 is a feeder fund to the A SEK share class.

Past performance of the A1 SEK share class prior to 01.04.2022 relates to the A SEK share class of the Sub-fund whose performance prior to 01.10.2013 relates to the former Swedish registered East Capital Balkans which from 01.10.2013 was a feeder fund to the A SEK share class of the Sub-fund until 31.03.2022.

2022-04-01

The merger of the Funds East Capital Balkan, East Capital New Europe, East Capital Russia and East Capital Eastern Europe with East Capital Balkans, East Capital New Europe, East Capital Russia and East Capital Eastern Europe (respectively) has been carried out in accordance with the submitted merger plan, which was approved by Finansinspektionen (the Swedish Financial Supervisory Authority) on 15 February 2022.

East Capital Balkans, East Capital New Europe, East Capital Russia and East Capital Eastern Europe thus ended on 1 April 2022.

Following the merger, former shareholders in East Capital Balkan, East Capital New Europe, East Capital Russia and East Capital Eastern Europe now own shares in East Capital Balkans, East Capital New Europe, East Capital Russia and East Capital Eastern Europe.

More information about the merger, such as the auditor's opinion on the exchange relationship, can be obtained from the management company East Capital Asset Management S.A. upon request.

The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (“S&P”) and is licensed for use by East Capital. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. (www.mscibarra.com)