Jupiter Emerging European Opportunities marks 5th anniversary

Jupiter’s Emerging European Opportunities Fund has marked its 5th anniversary with a total return of 405%.

The £600m Fund, managed by Elena Shaftan and Ingrid Kukuljan, has been one of the top performing funds in the UK since its launch on 16 September 2002. Its 405% total return compares with 226% for the Morningstar Global Emerging Markets sector average, placing the Fund 1st out of 21 funds in the sector. This performance, produced through a variety of market conditions, also places the Fund 4th out of the total universe of 1,888 UK-registered funds.

The performance of Jupiter Emerging European Opportunities has been driven by two themes that have dominated the portfolio since inception – rapid economic and structural developments in Russia and an emerging domestic consumption story across the region.

Elena said: “A significant contributor to the Fund’s performance has been our exposure to the Russian market. Contrary to popular belief, Russia is more than just an oil and gas story, with rapidly improving consumer and infrastructure spending trends driving profits for a number of companies that we hold. For example, Sberbank, Russia’s largest retail bank has been one of our biggest holdings since the Fund’s launch. Even though it is up by almost 2,000% since then, it still trades at only 11 times expected earnings for 2008 and is growing earnings by more than 50% a year.

Positions held in markets benefiting from EU convergence – Poland, Hungary and Czech Republic – have also helped over the years.

Ingrid Kukuljan said: “There are several drivers behind the growth of these markets that have created an environment for companies to flourish. These include European Union structural funding, strong consumer activity and healthy corporate earnings. A valuation discount to developed Europe also adds to the attraction of these countries.”

Since inception, consistent performance and growth in funds under management have led to the development of the management team behind the fund. Initially, the fund was solely managed by Elena. She was joined by Ingrid Kukuljan in 2004. More recently, analyst Colin Croft joined the team.

In addition, new listings and strong corporate growth mean that regional stock markets are now deeper and more liquid (trading volumes have risen six-fold) since the Fund’s launch. Expanding market liquidity means that future growth in funds under management should not impede the Fund’s performance, and can in fact have some benefits.

Elena said: “Running a large fund provides better access to companies, and an information advantage can be a very valuable asset in these markets.”

In recent weeks, market sentiment has been dominated by concerns about financial losses from the subprime mortgage sector in the US and a broad increase in global risk aversion. During such times, investors tend to embark on a flight to safety and perceived risky assets can receive a battering, regardless of any underlying strength in their fundamentals.

Not surprisingly, emerging European markets suffered a turbulent August with falls in regional markets taking some of the shine off gains made earlier in the year. However, the team believes recent weakness in the region defies healthy fundamentals, particularly in Russia, which is the largest portion of the portfolio.

Elena comments: “The foundations of Russia’s economy have strengthened markedly in recent years, making it far less exposed to changes in global growth. The country has very healthy budget and current account surpluses and has the world’s third largest foreign exchange reserves. Russia’s valuations are undemanding and economic growth remains robust at about 7% driven predominantly by domestic demand. Given this, we wouldn’t expect the country to be significantly affected by the subprime issue.

“Further comfort can also been taken from the relatively low levels of personal borrowing and expanding domestic liquidity. Russia’s bank loans equate to about 30% of GDP, while in the UK they stand at 162% of GDP, and assets in pension funds, mutual funds and insurance are now over $50bn against $35bn a year ago and almost nothing four years ago.

“Looking beyond the current worries, the outlook for the region looks favourable. The economies of our major markets are sound, with strong domestic demand and investment growth creating some exceptional opportunities. In two of our biggest markets, Russia and Poland, the governments have yet again increased their 2007 GDP forecasts to 7.2% and 6.5% respectively. Valuations look attractive, more so following the recent downturn. Consequently, we view the current weakness as a potential buying opportunity.”