East Capital New Europe

East Capital New Europe Fund delivered a solid return of 9.4% during the last quarter of 2025, outperforming its benchmark by 1.4%. Performance was mainly driven by a strong December return of 7.3%. We generated positive alpha in Austria, Hungary, and Turkey, while detracting contributions came mainly from Poland, Greece, and Georgia. 

Poland’s “Goldilocks economy” continued to deliver solid fundamentals in H1 2025. GDP growth in 3Q25 reached 3.8% YoY, more than double the EU average of 1.6%. Inflation also surprised positively, with December CPI easing to 2.4% MoM, from 2.5% in November, and below expectations. Despite this supportive macro backdrop and strong market performance, Poland was the largest alpha detractor in 4Q25 (-48bps). The main negative contributors were CCC (-72bps), which underperformed on concerns about margin pressures linked to unfavourable weather conditions, and KGHM (-52bps), where our underweight position detracted due to a strong rise in copper prices. Recognising a strong demand outlook for copper, we have been adding KGHM recently. These losses were partly offset by strong alpha from LPP (+45bps), supported by strong Q3 2025 results, with EBITDA 19% above expectations and upgraded 2026 growth/margins guidance signifying that 2026 EBITDA can grow by more than 40% on the back of the rapid expansion of the Sinsay brand. It is good to see that the company has confirmed our view since mid-2025, when we added it as the largest active weight in Poland. We also generated alpha by not holding Allegro (+44bps), which weakened over the quarter due to its share overhang. Poland remains one of the strongest performers in our investment universe, outperforming both emerging and developed markets, with 75% YoY performance in 2025, driven partially by the increased prospect of a peace deal in Ukraine. Accordingly, we increased our weight in strong Polish names this quarter, with additions to Pekao, PKO, PKN, KGHM and Budimex, for example, and we added Benefit Systems to the portfolio. 

Greek macros continue on a trajectory of steady recovery. GDP grew by 2.0% YoY in 3Q25, supported by a strong acceleration in fixed capital investment. Residential construction expanded 24.5% YoY, while private consumption grew 2.4% YoY in the same period. Despite the exceptional Greek market performance of 84% YoY, Greece detracted from fund alpha in 4Q25, primarily due to weakness in Optima and Theon. Our investment in Optima has been very rewarding overall, as it was one of the fund’s strongest alpha generators in 2025 (+159bps), even though it detracted 63bps in the fourth quarter due to “peak NIM” concerns for Greek banks and some profit taking – as Greek banks performed strong throughout 2025. Similarly, Theon detracted 63bps in 4Q25, following a pullback after a new capital issue to acquire an important component producer. But the company remains one of the fund’s top alpha generators in 2025 (+136bps). We are staying overweight in Theon, as the company is expected to deliver approximately 30% earnings growth in 2025, and continues to trade on an attractive valuation (PEG ratio of 0.5x). On the positive side, Titan Cement contributed meaningfully (+58bps), as the company continued to execute strongly on both organic and inorganic growth, demonstrated by the Tracim acquisition in 4Q25. In terms of positioning, we continue to hold Greek banks in general, but have taken some significant profits from names such as Alpha Bank, Eurobank, and NBG. 

Turkey ended the year with improving momentum, as December CPI eased to 30.9% YoY (0.9% m/m) and the CBRT cut rates by 150 bps to 38%, while a 27% minimum wage hike came in above expectations, but is seen as manageable and unlikely to disrupt disinflation. Turkey was a notable alpha contributor to the fund in 4Q25 (+52bps), driven primarily by stocks we did not hold, including Eregli (-19% in 4Q25), Tupras (-1%), and Is Bank (-1%). Our preferred banking exposures remain Akbank and Yapi Kredi, which we believe are better positioned to benefit from ongoing normalisation. Several of our overweight holdings also performed strongly, including Bim, Enka, MLP, Coca-Cola Icecek, and Enerjisa Enerji, generating positive attribution. Within our Turkish holdings, the main detractors were Logo (-29 bps) and Do&Co (-23 bps), though these losses were more than offset by a strong stock selection. Turkey was an underperforming outlier within our investment universe in 2025, reflecting political uncertainty and a delayed recovery due to persistent inflation and a temporary pause in rate cuts earlier in the year. However, with inflation easing toward the end of 2025, and continued commitment to orthodox policies, we are increasingly constructive on Turkey for 2026. Barring significant political disruptions, the market may prove to be a dark horse in the portfolio. We expect disinflation (forecasting approx. 23% CPI at YE26) and further rate cuts (approx. 1,000 bps in 2026) to provide a supportive backdrop for equities.  

Beyond our largest country exposures, the fund generated meaningful alpha elsewhere. Raiffeisen (Austria) delivered +111 bps, while Hungary contributed +57 bps, driven primarily by a strong performance from OTP Bank. Both banks exhibit strong fundamentals and provide exposure to a potential Ukraine peace and reconstruction theme, and we remain overweight in both. Another notable contributor was Halyk Bank (Kazakhstan), which gained 19%. We participated in Halyks ABB at a 10% discount that aimed to increase liquidity and visibility for investors as the company trades at 3.8x P/E, 1x P/B, and offers an outstanding 15% dividend yield. 

In December, we participated in the largest EE conference in Prague, where we met more than 70 companies from our investment universe. Investors’ sentiment towards the prospects of Eastern European stocks are clearly positive, and peace in Ukraine looks more tangible than ever. We share those views and they are reflected in our portfolio. Valuations remain compelling, with Poland still trading at 23-31% discount versus emerging markets and the EU. Looking ahead, we will continue to favour high quality names (banks, retailers, high-growth midcaps) that are well positioned to benefit from Poland’s economic resilience, the investment cycle, and the Ukraine reconstruction theme. In Greece, following the strong performance of Greek equities, we maintain a selective approach and are focusing on high-growth companies trading at reasonable valuations with further re-rating potentials. And lastly, Turkey looks like it may surprise investors this year, as a delayed macro recovery now starts to become more evident. We will continue to focus on companies positioned to deliver real growth as macro conditions normalise. 

In conclusion, the fund ended 2025 with a strong performance, on the backdrop of improving macroeconomic conditions in key markets and our stock selection skills, enhanced by our constant communication with key stakeholders across the region. We believe the investment case for New Europe fund is strengthening, given that country-specific dynamics and a potential resolution to the war in Ukraine are creating a more supportive environment for earnings growth and re-ratings across the region. Our portfolio positioning is best placed to benefit from the economic resilience of Poland, selective growth opportunities in Greece, and the economic recovery in Turkey. East Capital New Europe fund is trading at 8.4x P/E, with 11.8% EBITDA and 9.2% y/y earnings growth and offering 5% dividend yield for 2026. Compelling valuations for countries in our investment universe, coupled with our active management, we believe the fund has the potential to deliver attractive long-term returns.

Performance in USD net of fees.

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