Vladimir Tsuprov, CIO of BNP Paribas Investment Partners, Saint Petersburg, Russia, "BNP Paribas L1 Equity Russia C C" (ISIN: LU0269742168) (15.03.2012): "Russian equities demonstrated a strong growth of 24% YTD in USD terms as at 15 March (partially attributed to the ruble appreciation) on the back of global risk-appetite increase, fueled by positive data from US and improvement in solving European debt problems. Russian strong macroeconomic statistics was also supportive for the market. Domestic economy is not visibly affected by the Eurozone slow down. In 2011 Russian GDP rose 4.3%. In January investments rose by 15.6% (YoY), retail sales by 6.8% (YoY) and industrial production by 3.8% (YoY). The market may remain volatile for the first half of 2012, on the back of 1) contagion from sovereign debt concerns in Europe, where the situation is still far from being resolved; 2) possible progress in the negotiations between the international community and Iran; 3) China slowdown.The Russian equities should be supported in the coming 12 months by expected slowdown of capital outflow on the back of political clarity after Vladimir Putin’s victory in the presidential elections with a strong mandate of 63.6%.The Russian market look attractive on valuation in comparison to oil price levels, EM on multiples and long term earning per share growth. A large gap opened up between equity market levels and the Urals oil price after the US rating downgrade in August 2011, making the market cheaper on this metric than at almost any time over the last decade. The Russian market is trading at a discount of over 40% to GEM on MSCI forward PE multiples. This is close to the widest level we have seen since the 2008 crisis. Strong macro and fiscal performance is expected in the coming 12 months as oil price should remain at high levels on the back of supply constrictions from the Middle East." Irina Budnikova, Fund Manager, "UBS (Lux) Eq S - Russia (USD) P-acc" (ISIN: LU0246274897) (14.03.2012): "The Russian market sold off in December following the perceived increase to political risk, which arose in the immediate aftermath of the Duma elections in early December. Wide spread allegations of electoral fraud and irregularities culminated in political protests taking place in Moscow throughout the remainder of December. By contrast, the Russian market has rallied through January and February, outperforming most of the global equity indices, including the broader MSCI EM. This rebound has been driven, in part, by the surge in oil prices, with Brent crude having reached levels above USD$ 123/bbl in the last month alone, primarily driven by supply risks in the Middle East, with ongoing unrest in Syria and heightened political tensions around Iran’s nuclear program. Domestically, there was no escalation in the protest movement, while Vladimir Putin won the 2012 presidential elections in the first round on March 4, 2012 with c 64% votes. It would appear that the market will be comforted by Putin´s victory as evidence of continuing stability with focus now shifting to whether Putin will deliver on his economic and political promises."
Aivaras Abromavicius, Partner and Senior Advisor at East Capital, "East Capital Rysslandfonden" (ISIN: SE0000777708) (16.03.2012): "The Russian economy is currently driven by a healthy combination of domestic and external demand with GDP expected to grow above 4% in 2012, supported by high oil prices and all time low inflation. The political uncertainty that affected the equity market at the end of last year has come down after the March presidential elections, but the protests that took place are now putting pressure on reforms in general and anti-corruption in particular which is likely to put pressure on the government to adopt a reform agenda in order to boost legitimacy and investments.
The Russian equity market currently enjoys low valuations (around 50% discount to global emerging markets), decent earnings per share growth and in our view clear triggers in terms of increased dividend payments for state-controlled companies and upcoming financial market reforms. Additionally Russia’s WTO entry is likely to have positive medium to long term effects on both the Russian economy and the investor sentiment.”
Tim McCarthy, Senior Portfolio Manager, "Valartis Funds (Lux) Russia & CIS Growth Fund" (ISIN: LU0096232995) (08.03.2012): "The political/election cycle was the primary domestic factor, while global oil prices, the European debt crisis and fears of Chinese hard landing were the leading global factors affecting Russian markets over the last few months."
e-fundresearch: "Which are the most important elements in your investment process and which benchmark is used?"
Vladimir Tsuprov, CIO of BNP Paribas Investment Partners, Saint Petersburg, Russia, "BNP Paribas L1 Equity Russia C C" (ISIN: LU0269742168) (15.03.2012): "The investment process is driven by rigorous company specific bottom-up proprietary fundamental research. We put emphasis on obtaining reliable information, company visits, and understanding what drives the stock price change dynamics. Investment analysts, specialised by sector, maintain valuation models and score cards for every stock in their respective sector coverage. Valuation models are used to produce in-house fundamental forecasts and calculate market potential, including the indicative target price. In the stock score cards metrics from valuation models (including P/E, P/B, EV/EBITDA, ROE, and PEG) are compared to company-specific historical levels, the overall Russian market, the Bloomberg consensus, and sector peers. It takes account of momentum factors in this market, which can be significant for selected sectors and stocks. The weighting of any particular metric is a discretionary decision, as every company and/or sector has a different sensitivity to certain metrics than others. The target price is then based on the calculated stock score. Stock score cards represent formal analyst recommendations and are reviewed weekly and whenever important news or company reports are released. Research roster aggregates the input from all stock score cards and contains data for all companies in the research universe. It is updated with any reviews of our estimates. All stocks in the research roster are ranked by upside to the target price.The portfolio manager selects the weighting of sectors and stocks to include in the portfolio. Besides investment ratings, upside/downside potentials and level of conviction the portfolio manger takes into consideration liquidity issues and tracking error limitations. Rigorous ongoing risk control and compliance ensure that the portfolio manager acts within pre-defined guidelines, and that internal guidelines on risk and liquidity are maintained. The MSCI 10/40 Net Return index is the benchmark of BNP Paribas L1 Equity Russia. The fund is UCITS III compliant fund, which means that 10/40-rule applies. There is a 10% limit on a weight for stocks of any single group entity. The sum of the weights of all group entities, with the weight of more than 5% should not exceed 40% of the fund portfolio. The MSCI 10/40 Indices take into account these investments limits and represent the constrained version of the MSCI Equity Indices, offering a pertinent benchmarking alternative for UCITS III compliant funds."
Irina Budnikova, Fund Manager, "UBS (Lux) Eq S - Russia (USD) P-acc" (ISIN: LU0246274897) (14.03.2012): "Firstly our proven price to intrinsic value investment philosophy, which is used to identify significant price to fair value discrepancies in the investment universe. Secondly our long term focus and deep industry knowledge which is leveraged to build a concentrated portfolio comprised of our best ideas with a broadly diversified sector exposure. Thirdly our experienced team of investment professionals comprised of PMs and sector specialist analysts with an average of more than 10 years investment experience. The fund has no benchmark."
Aivaras Abromavicius, Partner and Senior Advisor at East Capital, "East Capital Rysslandfonden" (ISIN: SE0000777708) (16.03.2012): "Our investment strategy is designed to capitalize on opportunities in Eastern Europe and Russia, while addressing risks. Typically our preference is geared towards domestic oriented themes and the growth of the consumer. The most important starting point is a non-index approach to investments, characterized by an active company selection, combined with a thematic top-down approach. We are strong believers that over time fundamentals matter, hence our stock selection emphasizes attractive valuations, stable cash flow, strong growth and high dividend yields.
Our investment process typically starts with an investment idea, be it company specific or thematic, which is screened on fundamental parameters to support the investment case. Furthermore, as a step to better understand and assess a company’s valuation and fundamentals, East Capital employs the concept of seeking first-hand information by meeting management and owners of the company. Our investment teams meet in excess of 1,000 companies in Eastern Europe and Russia each year. This serves as a great source of informational advantage and allows us to layer our fundamental liking of a stock with our qualitative assessment; a company’s exposure to market trends and potential, competitiveness and competition, operational, legal and governance risks. In addition to this, liquidity, market capitalization, return potential and triggers are included when forming the risk reward profile of an investment.
From 2010-07-01 the official benchmark of the Fund is the MSCI Russia Index Total Return (net) and until 2010-06-30 it was the RTS Index.”
Tim McCarthy, Senior Portfolio Manager, "Valartis Funds (Lux) Russia & CIS Growth Fund" (ISIN: LU0096232995) (08.03.2012): "The MC Russian Market Fund was launched in 1996, so its benchmark has changed a few times, as certain indices have become more representative of the market and more important to certain investors. Initially, the Fund was benchmarked to the ROS Index, created and maintained by Credit Suisse in Moscow, as this was one of the first indices available for Russian in 1996. More recently, the Fund has been converted into a UCITs 4 fund which has different portfolio concentration limit rules for which the MSCI Russia 10/40 Index is more closely aligned. For example, the current weighting of Gazprom in the ROS Index is over 28%, while no index constituents are greater than 10% in the MSCI 10/40 indices."
e-fundresearch: "Which over- and underweights are currently held in the fund?"
Vladimir Tsuprov, CIO of BNP Paribas Investment Partners, Saint Petersburg, Russia, "BNP Paribas L1 Equity Russia C C" (ISIN: LU0269742168) (15.03.2012): "We have strong weighting in selected high dividend stocks, mainly in energy sector, with dividend yields of 7-10%. We are going to keep this positioning as with the expected high oil price this year it is likely that high dividends will be supported. The best example is Surgutneftegaz preferred shares, where dividend yield is close to 12%. In addition the company has USD 29 bn in cash and in financial assets, which is close to the company’s capitalisation (hedge against rouble depreciation). The “60-66” oil taxation regime should benefit the company as it only refines 35% of the oil it extracts. The company also expects to publish its first set of IFRS statements in 2013 to comply with new exchange regulation, which should improve its transparency. The company launches hydrocracking unit at its Kirishi refinery in 4Q12, which should improve its refining margin. At the same time we keep exposure to selected high-beta stocks, which should perform well on the back of earnings growth, global situation improvement and stock/industry related triggers. I.e. we expect clarification of the regulation in power utilities sector this year, which might help some of the companies in the sector to outperform the market. The main bet in this segment is E.On Russia (one of the largest power generating companies in Russia), which is expected to produce more than 30% growth in its earnings per share in 2012. The company main power plants have very competitive position of regional markets’ cost curves. Among other local demand orientated company we should mention an overweight in Sberbank. We have an overweight position in Sberbank as we consider it to be a good opportunity to gain exposure to the expected growth in domestic demand at a relatively low price. Sberbank ordinary shares are currently trading at a P/B of 1.4 with an expected return on equity of 23-25% in 2012-2013. We like local demand orientated companies as non-oil sectors in Russian benefit more from oil price growth than oil producers themselves, and it is why the domestics are in fact a leveraged play on oil. Oil industry is the most heavily taxed in Russia. Taxes on oil contributes around half of the federal budget revenues. Through budget spending this money than is redistributed to other sectors. I.e. through state employees salaries increase oil money stimulate retail sales and business of the companies oriented on local demand."
Irina Budnikova, Fund Manager, "UBS (Lux) Eq S - Russia (USD) P-acc" (ISIN: LU0246274897) (14.03.2012): "Within the fund we remain focused on sectors where we consider the discount to be too deep and focus on attractively valued stocks within these sectors, which are mainly domestic names. One of our top holdings is Sberbank, which is well placed to capture strong lending growth and profitability driven by the domestic recovery. Similarly Gazprom remains highly attractive on valuation, while offering the potential for better corporate governance. We also focus on high quality names with above average growth prospects, such as Novatek. The stock, though trading at a premium, has a strong profitability outlook and the potential for further accretive M&A upside. We do not hold any fixed line operators within the telecom sector as we find them less attractive on structural and corporate governance risks. Some other sectors in Russia already trade in line with their global peers, for example integrated oil and materials companies. Within such sectors the drivers are mainly global and not Russian specific. But we are also invested in these sectors to have a broader sector exposure."
Aivaras Abromavicius, Partner and Senior Advisor at East Capital, "East Capital Rysslandfonden" (ISIN: SE0000777708) (16.03.2012): "Historically the East Capital Russian fund has been mostly focused on exposure to domestic consumption rather than commodity exporters. Currently we are overweight energy relative to our historical weights and peers (albeit still underweight relative to the benchmark) and we have been increasing our exposure over the past year. The main reasons for this increase are the relative low valuations of the Russian energy sector compared to the rest of the Russian equity market, low valuations compared to global energy peers and a positive evolution in corporate governance practices (mainly expected higher dividends in state-controlled companies). Higher than expected oil prices are also likely to lead to upward revision of profits for the sector. We are overweight the financial sector as a play on the growing middle class and their demand for credits (Russian households are largely unleveraged), as well overweight consumer staples and consumer discretionary on similar grounds (strong growth). We are underweight materials (metals and mining); mainly as we believe that the global outlook for metal prices is not supporting current valuations.”
Tim McCarthy, Senior Portfolio Manager, "Valartis Funds (Lux) Russia & CIS Growth Fund" (ISIN: LU0096232995) (08.03.2012): "Currently, we have zero weight in Gazprom and we are significantly under-weight oil and gas companies in general. The Fund’s oil and gas weighting is currently about 20%, while most indices for Russia have from 60% to 75%. The absence of Gazprom from our fund is an example of our active management style which has benefitted the fund over the long term. The risk is that ETF’s, which have large weights in Gazprom, will flood the market and push up Gazprom’s stock price. This happened in 1Q2011, when Gazprom rallied more than the broader market. But, over the long term, we see much more growth and value in companies focused on the domestic economy, in retail, banking, telecoms, technology, etc. As fundamental investors, we find it difficult to invest in companies that do not place shareholder interests above others and Gazprom needs serious management reforms before shareholder value becomes its primary objective. When Gazprom changes its ways, we will be the first to jump in and buy shares, as this would be the largest company in the world, given its gas reserves."
e-fundresearch: "Please comment on the performance and risk parameters of your fund in the past year as well as over the past 3 and 4 years."
Vladimir Tsuprov, CIO of BNP Paribas Investment Partners, Saint Petersburg, Russia, "BNP Paribas L1 Equity Russia C C" (ISIN: LU0269742168) (15.03.2012): "BNP Paribas L1 Equity Russia demonstrated strong out-performance versus peers with four stars rating from Morningstar. The fund is in the top-quartile for 1 year and 3 years periods as of end February 2012, according to the performance versus peers registered in Luxemburg. We believe that the key factor, which helped to achieve this result, is the ability of the Investment team to exploit under-researched segments of the Russian and CIS equity market, including mid and small caps. This is a highly specialised competence that requires the on-the-ground presence of Russian speakers who can conduct company visits. Our investment team is one of the largest ones among those specialized on Russia equities and can cover the entire capitalization spectrum of the Russian market within the framework of rigorous risk controls. Volatility of the fund was lower than the benchmark volatility over one and three year periods as well as since 5 March 2007, when first NAV of the fund was available."
Irina Budnikova, Fund Manager, "UBS (Lux) Eq S - Russia (USD) P-acc" (ISIN: LU0246274897) (14.03.2012): "This fund does not have a benchmark. Our objective is to generate top quartile performance against peers over a full investment cycle of 3 years. Our peer group is comprised of other Russian equity funds within a selective Lipper. UBS (Lux) Equity SICAV- Russia outperformed the peergroup by 5.5% and 1.9% over 3 and 4 years respectively. Risk control begins at the company level. Stock selection is mainly driven by our proprietary research, which looks at all factors that potentially impact the value of a specific company. Besides the calculation of a fair value for each company based on our proprietary Global Equity valuation system (GEVS), we look at factors like balance sheet health, management quality, shareholder value focus, profitability and sustainability of a specific sector and the positioning of a company within that sector. Any other relevant data input be it quantitative or qualitative will be evaluated and made part of the final decision making to include or not include a stock in the portfolio. We aim to be diversified across sectors and keep exposure to all sectors and industries in the portfolio. We do not hold any speculative positions within the portfolio, we do not engage in momentum investing. We consistently apply our liquidity parameters as part of the portfolio construction process and do not invest in illiquid securities, in essence we only buy what we can sell again."
Aivaras Abromavicius, Partner and Senior Advisor at East Capital, "East Capital Rysslandfonden" (ISIN: SE0000777708) (16.03.2012): "Thanks to our long term approach and active management, the East Capital Russian Fund has strongly out-performed its index since its inception in 1998: 1500.9% versus 697.3% for its benchmark (in USD), making it one of the best performing Russia funds for that period.
Year to date the East Capital Russian Fund is up 29.3% (in USD) as of 2012-03-15. 1 year rolling performance is -8.7%, over 3 years the fund is up 244.1% and over 4 years down -16.9%.”
Tim McCarthy, Senior Portfolio Manager, "Valartis Funds (Lux) Russia & CIS Growth Fund" (ISIN: LU0096232995) (08.03.2012): "Since I took over the MC Russian Market Fund in January 2009, the Fund has generated a return of 168.74% (as of 29.02.2012) and outperformed the ROS Index by 31.65%. Using the last three years of the Fund’s returns, the Fund’s Beta calculated on Bloomberg is 0.903. Since we are active managers and we deviate substantially from the index with a focus on fundamental value, our portfolio typically does not have the same stocks as the ETFs which now make up 60% to 80% of daily fund flows and cause tremendous volatility. This generally makes the Fund’s volatiliy lower than the market’s volatility."
e-fundresearch: "Did your fund outperform or underperform vs. benchmark over the past 5 years and which part could be linked to securities selection (Performance Attribution)?"
Vladimir Tsuprov, CIO of BNP Paribas Investment Partners, Saint Petersburg, Russia, "BNP Paribas L1 Equity Russia C C" (ISIN: LU0269742168) (15.03.2012): "On 5th March 2012 the fund achieved the five year track record. Over this period it underperformed its benchmark mainly due to the fund positioning in the beginning of 2009. The substantial negative performance effect in 2009 came from a large cash position at the start of 2009. We are conservative fundamental investors, and in the first 3 months of 2009 were not yet convinced that the rally on the Russian market could be sustained by underlying fundamentals. If we had reduced cash too quickly, and liquidity had again dried up, the effect on performance would have been substantially negative. 2009 was the year that the fund transitioned from its end 2008 crisis period positioning of being a benchmark tracker to one that invested more heavily in off-benchmark stocks. Since April 2009, when we believed the Russian economy was out of the worst of the downturn, we implemented a strong growth bias in the fund through allocation to off-benchmark stocks primarily in mid caps. This decision had substantial positive effect on performance in 2009 and 2010. In 2010 the fund outperformed its benchmark. A position in the preferred stock of Bashneft was the largest single positive contributor. We kept the position in this stock until October as we believed it would prove to be a successful turnaround and was trading very cheaply for the upside potential. Bashneft was a crude oil producer prior to 2009 when Sistema became its main shareholder and decided to consolidate all of the holding upstream and downstream assets under one umbrella. As a result Bashneft became a top-ten oil producer and a top-five oil refiner in Russia. Our underweight in the benchmark stock Polyus Gold provided the second highest positive effect. We maintained an underweight position throughout most of the year as the reverse takeover of the company by KazakhGold seemed to pose substantial risk due to a conflict between the shareholders of both companies."
Irina Budnikova, Fund Manager, "UBS (Lux) Eq S - Russia (USD) P-acc" (ISIN: LU0246274897) (14.03.2012): "Fund performance is not measured against a benchmark. However, against peers, UBS (Lux) Equity SICAV- Russia outperformed by 6.2%. There was a significant amount of volatility within the market over this period of time. Our decision-making process is driven by bottom-up proprietary research. About 70-80% of our expected alpha is driven by stock selection, with top-down factors setting the risk parameters for the portfolio. The goal of portfolio construction is to produce significant outperformance by building significant bets into the portfolio, while properly controlling risk."
Aivaras Abromavicius, Partner and Senior Advisor at East Capital, "East Capital Rysslandfonden" (ISIN: SE0000777708) (16.03.2012): "The performance of the East Capital Russian Fund over a 5 year rolling period (in USD) per 2012-03-15 was -0.7% versus -10.4% for MSCI Russia Index Total Return (net).
It is worth noting that the past 5 year period for Russian equities has mainly been negatively impacted by the global financial crisis in 2008 and the European debt worries in 2011, occasions when investors sold off perceived risky assets like emerging market equities, despite the fact that the emerging world has substantially lower debt and higher growth than the developed economies in the West.”
Tim McCarthy, Senior Portfolio Manager, "Valartis Funds (Lux) Russia & CIS Growth Fund" (ISIN: LU0096232995) (08.03.2012): "I have only managed the Fund since January 2009, however, I did manage a similar strategy and Fund, called Dobryna Nikitich, which generated a return of 1746% over a 6.25 year period and outperformed the benchmark by 711%."
Alle Performance Daten per 05.03.2012: