CBL Asset Management. Fund Manager Report. May Bond funds. Equity funds. CBL Eastern European Bond Fund. CBL Global Emerging Markets Bond Fund

Transcription

1 Fund Manager Report May 2016 Bond funds CBL Eastern European Bond Fund CBL Global Emerging Markets Bond Fund Equity funds CBL Russian Equity Fund CBL Baltic Sea Equity Fund CBL Eastern European Select Equity Fund

2 CBL Eastern European Bond Fund Class R Acc Class R Acc (hedged) Performance History* Andris Kotāns, CFA Edgars Lao, CFA Inception Date 12/03/ mln 1.5% p.a. Front Load Fee Up to 1.0% Class R Acc Class R Acc (H) LV LV PAREEUB LR PAREUBA LR Share Class Size 11.4 mln 16.7 mln NAV Ratings and Awards Morningstar Rating TM (primary share class R Acc ) Lipper Fund Awards 2016 Europe Best Fund 3&5 Years Bond Em.Markets Europe To achieve long-term capital growth by investing in short-term and long-term debt securities issued or guaranteed by the governments, municipalities, central banks, credit institutions and corporations of Eastern European countries % * Class R Acc (hedged) investment policy changed to a bond-only from a balanced one in January % 4.5% 6.0% 5.7% -36.2% 67.9% YTD 1M 3M 6M 1Y 2Y 3Y 5Y* SI* R Acc 4.7% 0.6% 5.2% 3.5% 5.5% 2.3% 2.9% 3.4% 6.1% 11.0% -7.8% 2.9% R Acc (hedged) 3.8% 0.5% 4.4% 2.5% 4.4% 0.9% 1.8% 1.6% 4.4% 9.2% -8.4% 2.3% 18.3% -0.5% 16.0% 15.0% 2.9% 2.3% -7.8% -8.4% 11.0% 4.7% 9.2% 3.8% Return R Acc Return R Acc (hedged) R Acc R Acc (hedged) indexed YTD Investment Process Top 10 Holdings Coupon Maturity Weight Portfolio Statistics Focus on bottom-up credit selection Hungary 6.25% Jan % Average Yield-to-Worst 5.8% Country, industry and issuer diversification Bank of Georgia 7.75% Jul % Average Modified Duration 2.7 Absolute-return mindset MOL 6.25% Sep % Average Credit Rating Ba2 Flexibility to evaluate any investment opportunity Evraz 8.25% Jan % Number of Holdings 30 Bulgarian Holding EAD 4.25% Nov % Average Security Weight 3.0% Severstal 5.90% Oct % Manager's Commentary for May Halyk Bank 7.25% Jan % Performance Statistics (3Y) Synthos 4.00% Sep % In May, financial markets delivered mixed results as growth subsided in many of them. Whilst oil added further 3% over May, LMEX metals index lost April s gains and was down 7% over the month. World equities ended the month just slightly lower, whereas emerging markets were 4% lower. Hard currency bonds were unchanged over May, where Eastern Europe added minor 0.2% over the month. Vivacom 6.63% Nov % Croatia 3.88% May % Volatility (Standard Deviation, %) 6.5% 6.3% Total 36.3% Sharpe Ratio Sortino Ratio Value-at-Risk Value-at-Risk (30d / 95%)** 2.7% 2.8% Value-at-Risk Country Breakdown R Acc R Acc (H) Within Eastern Europe, investors eyes turned to Turkey in May as it surprised with PM Ahmet Davutoğlu s announcement of stepping down. President Erdoğan chose Binali Yıldırım, Minister of Transport, Maritime and Communication at the time, as Turkey Russia 12.3% 12.1% Government 16.8% 28.4% the successor. The changes are believed to be a result of disagreements between the President and Mr. Davutoğlu with the President possibly questioning the loyalty and subordination of the former PM. Mr. Yildirim is believed to be more loyal to the President. While such changes do raise longer-term concerns over the future of the country s politics, we do not expect a lasting market impact. Ukraine Kazakhstan Hungary Bulgaria 7.0% 8.0% 10.7% 9.9% 13.0% 9.1% 6.8% Croatia 6.1% 6.2% The Fund gained 0.6% (as per R Acc share class) in May, surpassing the market performance. The most of the outperformance came from security selection in Ukraine, where Metinvest and MHP drove returns, and to a lesser extent from Estonia Georgia 3.8% 3.7% Telecommunication Services 3.4% 3.3% underweight to Turkey. On the other hand, underweight to better-performing Russia hurt the Fund s relative performance the most. Interestingly, amongst individual securities, Ukraine stood out both at the top and the bottom end of the Fund performers as its distressed Avangard dragged the Fund s performance the most. Poland 3.5% Others Credit Rating Breakdown 12.3% 2.3% Maturity Breakdown We carried out several trades during the month. Notably, we opened new positions in Ukraine s Ukreximbank and Yaşar Holding, one of Turkey s leading producers of food and beverage producers. We added to our holdings in Evraz and MOL, while we Baa 9.2% <1 year 2.0% partially fixed the recent sizable gains in International Bank of Azerbaijan and Metinvest. We fully sold Turkey-based white-goods and consumer electronics Ba 44.0% 1-2 years 11.6% producer Arçelik, and we switched our selection on Croatia s sovereign curve. B 19.3% 2-3 years 23.1% May saw slowdown in the strong market performance of the past few months, but it did not quite classify as a correction. With the valuation levels and some of the global tail risks ahead (Fed hike, Brexit vote) unchanged and the ongoing sizable <B 8.2% 3-5 years 31.0% new debt supply, we see little ground to change our tactically defensive bias in the portfolio. With the adjustments made in the portfolio during May, we now see our NR 8.7% >5 years 16.0% market positioning to reflect this market view, but both further reduction, as well as an increase of the Fund s risk exposure is possible as we proceed. In the meantime, we do hold on to elevated cash position to keep our powder dry. purposes only, and shall not be considered as marketing/advertising message, public offer, investment advice nor a recommendation to buy, hold, sell any of the mentioned financial instruments nor participate in any of the related activities. The information contained herein is not an investment analysis, investment research nor annual/semiannual report required by laws and regulations; further, the document does not contain all of the risks related to the financial instruments. The information contained in this document in no case is produced to be adapted to neither individual investment needs, objectives, risk tolerance, knowledge and experience in financial markets nor to any other investor's investment decision considerations and constraints. The authors of the material personally as well as IPAS, its affiliates or representatives shall not be liable for the consequences of using the information and statements contained herein or any its part; that includes declining of any liability for any direct or indirect damages (including lost profit) and penalties as well, even in cases when the user of information has warned there could be any. The information and statements contained in this review are made in good faith based on information available to the authors and obtained from the sources believed to be reliable (Bloomberg, Reuters, other mass media, stock exchanges, central banks and statistic bureaus, information found on company websites, etc.) however, IPAS can not and does not guarantee accuracy and completeness of such information, and the authors of the document do not assume commitment to inform users if the information contained herein proves to be inaccurate, misleading or not corresponding to other sources.

3 CBL Global Emerging Markets Bond Fund Performance History Andris Kotāns, CFA Edgars Lao, CFA Inception Date 25/06/ mln NAV % p.a. Front Load Fee Up to 1.0% LV CITGEMB LR Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 The investment objective is to achieve long-term capital growth by investing in debt securities issued or guaranteed by the governments, municipalities, central banks, credit institutions and corporations of developing countries. Fund 5.1% -0.4% 4.7% 2.9% 0.7% 0.0% % -1.2% 0.2% 0.4% Investment Process Top 10 Holdings Coupon Maturity Weight Portfolio Statistics Absolute-return mindset Schroder ISF - Asian LC 4.0% Average Yield-to-Worst 5.9% Focus on bottom-up credit selection Cencosud 5.50% Jan % Average Modified Duration 3.3 Country, industry and issuer diversification Pertamina 4.88% May % Average Credit Rating Ba1 Indonesia 2.88% Jul % Number of Holdings 41 Empresa Nacional del Petroleo 5.25% Aug % Average Security Weight 2.2% RCS & RDS 7.50% Nov % International Bank of Azerbaijan 5.63% Jun % Manager's Commentary for May Suzano 5.88% Jan % Performance Statistics (3Y) JBS 7.75% Oct % Despite oil prices briefly crossing the $50 per barrel mark, emerging markets lost momentum in May. In particular, local currencies weakened heavily, amid a series of hawkish statements from the FED, which lead to a stronger US dollar and most of developed market risk assets. Namibia 5.50% Nov % Volatility (Standard Deviation, %) - Total 33.2% Sharpe Ratio - Sortino Ratio - Value-at-Risk ( Value-at-Risk (30d / 95%)** - During the month, EM Eurobonds 1 stayed largely flat. Solid performance came from Asia, but Latin America, the main market driver of previous months, performed poorly. Asia gained mainly on the back of Chinese corporates, while Brazilian names were a drag on Latin America, as the upbeat momentum related to the impeachment process started to fade. Emerging market local currency debt 2 had a setback in May, falling by 5.5% in terms (-0.6% in local currency terms). Contribution-wise, all of the regions had negative returns with Latin America lagging the most (-6.2% in, -0.3% in LC terms). Mexico was the main detractor in Latin America as the peso nosedived following hawkish FED statements. Europe and Asia fell less (-4.1% and -4.4% in, -0.4% and -0.7% in local currency terms, respectively), while Middle East and Africa had the smallest negative contribution. Region Breakdown Central and Eastern Europe Latin America 0% 10% 20% 30% 40% RU CL KZ BR BG RO AZ Other Other Government 13.8% 11.6% 10.7% 9.7% 7.7% 5.1% 20.4% During the period, we made numerous changes to the Fund s investment portfolio. Following the sizable narrowing of spreads since February, we opted to sell all our banking names in Latin America Brazilian Banco Daycoval and BNDES, a state development bank, Chilean BancoEstado and Peruvian Interbank. In turn, we added Suzano, a Brazilian pulp and paper manufacturer, Telecel, a provider of mobile communications in Paraguay, and Argentina s recently issued Eurobonds to the portfolio. In Asia, we sold Alibaba, while in Europe we divested from Macedonia and Turkey s Eximbank. We reinvested proceeds into Yasar Holding, one of Turkey s leading producers of food and beverage products, and Ukreximbank, one of Ukraine s largest banks. Asia Middle East and Africa ID VN LK IN Other ZA NA Other Credit Rating Breakdown Funds 4.0% 3.7% 3.1% 2.2% Currency Breakdown 8.0% During the month, our Fund lost 0.4%, yet outperformed the emerging markets composite index 3 that fell by 1.1%. Within the hard currency segment, our Fund gained materially from the security selection in Latin America. In the local currency segment, the Fund gained from both smaller exposure and better security selection. On a single name basis, local bonds of South Africa stood out as the main detractors amid mounting risk to lose investment grade rating, while three out of five top performers were Brazilian names (Marfrig, JBS and Banco Daycoval). Aaa 3.4% Aa 0.8% Manager's Commentary for April A 5.0% Baa 20.5% EM Europe EM Asia 5.6% 4.7% 84.7% May saw slowdown in the strong market performance of the past few months, but it did not quite classify as a correction. With the valuation levels and some of the global tail risks ahead (Fed hike, Brexit vote) unchanged and the ongoing sizable new debt supply, we see little ground to change our tactically defensive bias in the portfolio. With the adjustments made in the portfolio during May, we now see our market positioning to reflect this market view, but both further reduction, as well as an increase of the Fund s risk exposure is possible as we proceed. In the meantime, we do hold on to somewhat elevated cash position to keep our powder dry. 1 JP Morgan indices (50/50 sovereign/corporate) Ba B <B NR Net 2.5% 4.2% 8.0% 24.9% 30.6% LatAm Africa 2.9% 1.4% 0.8% 2 JPM GBI-EM Global Div index 3 40% JPM EMBIG, 40% JPM CEMBI, 20% JPM GBI-EM Global purposes only, and shall not be considered as marketing/advertising message, public offer, investment advice nor a recommendation to buy, hold, sell any of the mentioned financial instruments nor participate in any of the related activities. The information contained herein is not an investment analysis, investment research nor annual/semi-annual report required by laws and regulations; further, the document does not contain all of the risks related to the financial instruments. The information contained in this document in no case is produced to be adapted to neither individual investment needs, objectives, risk tolerance, knowledge and experience in financial markets nor to any other investor's investment decision considerations and constraints. The authors of the material personally as well as IPAS CBL Asset Management, its affiliates or representatives shall not be liable for the consequences of using the information and statements contained herein or any its part; that includes declining of any liability for any direct or indirect damages (including lost profit) and penalties as well, even in cases when the user of information has warned there could be any. The information and statements contained in this review are made in good faith based on information available to the authors and obtained from the sources believed to be reliable (Bloomberg, Reuters, other mass media, stock exchanges, central banks and statistic bureaus, information found on company websites, etc.) however, IPAS can not and does not guarantee accuracy and completeness of such information, and the authors of the

4 CBL Russian Equity Fund Elchin Jafarov Kristiana Janvare, CFA Igor Lahtadir, CFA Inception Date* 17/03/ mln NAV % p.a. Front Load Fee Up to 2.5% LV PARRUEQ LR Benchmark RTS Index Ratings and Awards Morningstar Rating TM Lipper Fund Awards 2013 Europe Best Fund over 3 years Equity Russia Long term capital appreciation by investing in a selected list of Russian companies with the highest growth potential and attractive valuations. The Fund's return is a combination of stock value growth and dividend payoffs. Performance History % 65.4% 62.9% 36.9% -72.7% 125.4% Fund 16.9% -1.1% 18.5% 3.4% -7.5% -16.6% -13.0% -12.2% 2.5% 1.8% -49.4% 0.3% Benchmark 19.5% -4.9% 17.6% 6.8% -6.7% -16.4% -12.1% -13.7% 2.1% -4.3% -45.2% -5.5% 35.1% YTD -27.1% 16.6% 0.3% -49.4% 1.8% 16.9% Investment Process Top 10 Holdings Portfolio Statistics Top-down and bottom-up idea generation Novatek Oao 7.9% Number of Holdings 26 Active management Lukoil 7.6% Avg. Security Weight 3.5% Fundamental approach Phosagro 6.9% Median P/E* 11.3 Industry diversification Moscow Exchange Micex-Rts Oao 5.1% Median P/B* 1.7 market monitoring Sberbank 4.9% Average Dividend yield* 4.6% Gazprom Oao 4.4% * only for securities for which accurate data is available at the date of publication X5 Retail Group 4.4% Manager's Commentary for May Qiwi Plc 4.3% Performance Statistics (3Y)** Norilsk Nickel 4.3% On the global front, the central event in May was the release of unexpectedly hawkish FOMC minutes, which resulted in sharp re-pricing of the Fed hiking expectations. While developed equity markets exhibited surprising resilience (MSCI World even edged up 0.2%), emerging equities were hit by dollar strengthening and fund outflows, as MSCI EM index retreated by 3.9%. Unfortunately, Russian market followed the suit, bringing its impressive three-month rally to a halt. RTS index lost 4.9% in May and rouble depreciated by 2.8%, despite stronger oil. Brent advanced by 3.2%, occasionally breaking through the $50 per barrel level, as supply disruptions in Nigeria, Canada and Venezuela contributed to market rebalancing. Magnit Oao 4.2% Volatility (Standard Deviation, %) 26.9% Total 53.9% Sharpe Ratio -0.4 Sortino Ratio -0.7 Value-at-Risk (30d/ 95%)** 15.4% 22.3% 27.2% In/ Out Benchmark On the domestic front, preliminary estimates by the Federal State Statistics Service showed that Russian economy contracted by 1.2% y/y in 1Q2016. Although no 11.0% In Benchmark 76.7% breakdown by GDP components has been revealed yet, the headline figure is better than Bloomberg consensus forecast of 2% decline, and also comes ahead of MinEconomy s projection of 1.4% drop. Better than expected performance of the 10.4% Russian economy is encouraging, but it might be a bit premature to draw robust conclusions as flash estimates might be subject to substantial revisions. At the same 5.2% time, recent strength in oil prices gives reason to be optimistic. 3.2% On the negative side, Russian government s order from last month requiring several large state-controlled companies to pay out 50% of IFRS earnings in form of 1.2% Out of Benchmark 23.3% dividends effectively failed to materialize in practice. In particular, Gazprom managed to negotiate a 22% payout, which implies just 5.1% yield. We had anticipated that the 8.9% government s proposal was likely to face fierce opposition, and hence took profit in Gazprom shares beforehand. Sector Allocation vs Benchmark The Fund lost 1.1% during the month. The largest negative contribution came from and sectors, followed by. On the other hand, 10.0% 9.7% and Technology positively impacted the Fund s performance. 4.5% In May, we also partially took profits in Bashneft shares, since its valuations seemed 1.3% to already price in privatization expectations; and Norilsk Nickel, as the company s 0.8% free cash flow profile looks challenging for maintaining existing dividend payments. On the other hand, following abrupt correction, we accumulated shares of Qiwi, as we -0.1% believe that regulatory concerns are overdone. Also, we increased position in Alrosa, Health Care -0.1% as global diamond market has been showing signs of recovery, while cheap rouble provides support to the company, lowering its cost base. -0.8% -11.8% Looking forward, we expect such external factors as the Fed s rate decision, political events in Europe, and oil price movement to determine the direction of Russian equity market in June % 8.9% purposes only, and shall not be considered as marketing/advertising message, public offer, investment advice nor a recommendation to buy, hold, sell any of the mentioned financial instruments nor participate in any of the related activities. The information contained herein is not an investment analysis, investment research nor annual/semi-annual report required by laws and regulations; further, the document does not contain all of the risks related to the financial instruments. The information contained in this document in no case is produced to be adapted to neither individual investment needs, objectives, risk tolerance, knowledge and experience in financial markets nor to any other investor's investment decision considerations and constraints. The authors of the material personally as well as IPAS CBL Asset Management, its affiliates or representatives shall not be liable for the consequences of using the information and statements contained herein or any its part; that includes declining of any liability for any direct or indirect damages (including lost profit) and penalties as well, even in cases when the user of information has warned there could be any. The information and statements contained in this review are made in good faith based on information available to the authors and obtained from the sources believed to be reliable (Bloomberg, Reuters, other mass media, stock exchanges, central banks and statistic bureaus, information found on company websites, etc.) however, IPAS can not and does not guarantee accuracy and completeness of such information, and the authors of the

5 CBL Baltic Sea Equity Fund Elchin Jafarov Kristiana Janvare, CFA Igor Lahtadir, CFA Inception Date* 24/08/ mln NAV % p.a. Front Load Fee Up to 2.5% LV CITBSEF LR Performance History* % % 6.9% % 38.8% 26.6% -22.3% 19.8% 9.3% -3.0% 2.2% -3.1% *The data before November 20, 2013 relates to Citadele Baltic Sea Countries Equity Fund ( LT ), which was fully transferred at par into newly established "CBL Baltic Sea Equity Fund ( LV ) with the identical investment strategy. BSEF investments are concentrated on equities with a long-term growth perspective. The Fund has a geographical focus on countries of the Baltic Sea region, namely Baltic States, Germany, Norway, Sweden, Finland, Denmark, Poland and Russia. 0 * -55.8% YTD Fund -3.1% 0.3% 5.9% -7.6% -12.8% -3.4% 1.1% -0.5% 2.9% 2.2% -3.0% 9.3% Investment Process Top 10 Holdings Portfolio Statistics Top-down asset allocation Siemens AG 4.0% Number of Holdings 42 Bottom-up individual stock selection Novo Nordisk A/S 4.0% Average Security Weight 2.2% market monitoring SAP AG 3.7% Median P/E 15.2 Monthly result evaluation Bayer AG 3.5% Median P/B 2.2 Country and industry diversification Tallink Group Ltd 3.4% Median Dividend Yield 3.4% Danske Bank A/S 3.3% Daimler AG 3.2% Manager's Commentary for May DNB ASA 3.2% Performance Statistics (3Y)* Continental AG 3.1% In May, European stocks, represented by Stoxx 600 Europe index gained 1.7%, posting the third consecutive month of positive returns. The key development last month was repricing of the Fed hiking expectations, following the release of FOMC minutes and hawkish comments from the Fed policymakers, which led to renewed dollar strengthening. 1Q 16 earnings season in Europe was rather weak. While 56% of Stoxx 600 Europe companies managed to beat analyst earnings expectations, with earnings overall exeeding analyst expectations by 3%, underlying earnings slumped 20% y/y. The decline was mostly driven by and sectors, excluding which European earnings increased by 0.6% y/y. Top line performance was soft: only 42% companies beat analyst estimates and revenues fell by 4% y/y, with most sectors posting declines, largely as a result of stronger euro amid relatively weak global demand conditions. In the Fund s investment universe, the strongest performers in euro terms were Danish equities that added 4.5%, followed by Finnish (+3.3%), and German (+2.2%) equities. On the other hand, Polish equities continued to struggle due to continued political uncertainty and erased 4.9% in euro terms. Swedish (-0.3%) and Baltic (+0.0%) equities were also less successful last month. Allianz SE 3.0% Volatility (Standard Deviation, %) 12.3% Total 34.4% Sharpe Ratio 0.1 Sortino Ratio 0.1 Value-at-Risk (30d/ 95%)** 6.9% Country Breakdown Germany Denmark Baltics Norway Sweden 10.2% 9.5% 8.5% 13.7% 45.5% Health Care 4.4% 10.2% 9.3% 14.1% 13.2% 16.7% 18.7% During the month, the Fund added 0.3%. From sector perspective, the largest negative contribution to the Fund s performance came from investments in Health Care due to a sharp drop in the shares of Bayer, as it submitted 62bn bid for Monsanto Co, the world s biggest seller of seeds and farm chemicals. Investors are concerned that the deal would strain Bayer s finances, significantly increasing the company s leverage. The deal also implies a rights issue and, thus, potential dilution risks to shareholders. Furthermore, the acquisition would change Bayer s corporate structure, with health care taking up only about half of the combined Group s assets. and sectors were the next largest performance draggers, showing broadbased weakness. On the other hand, the strongest performance was demonstrated by, followed by, and IT. and IT benefitted from renewed euro weakening, while was supported by another month of strong performance of Norwegian salmon producer Marine Harvest Group. Finland 3.7% Poland 3.2% 5.7% Currency Breakdown Manager's Commentary for April DKK 13.7% 62.8% 4.3% 2.0% 1.5% 5.7% Within the Fund, we increased our allocation to Nokia on valuation grounds. We also increased the Fund s exposure to Health Care sector by increasing our allocation to the shares of Fresenius SE and Novo Nordisk, as we like the sector s defensive nature, as well as its sensitivity to strengthening. In the same time, we sold all the shares in SEB in order to reduce the Fund s exposure to market risk. Currently the market seems to be focused on two major issues: British referendum vote on whether to stay in the European Union (June 23) and the Fed s monetary policy decisions. We maintain a degree of caution, as we expect heightened volatility and see these two as major risk factors that could potentially trigger a market correction. SEK NOK PLN 3.2% 10.5% 9.8% purposes only, and shall not be considered as marketing/advertising message, public offer, investment advice nor a recommendation to buy, hold, sell any of the mentioned financial instruments nor participate in any of the related activities. The information contained herein is not an investment analysis, investment research nor annual/semi-annual report required by laws and regulations; further, the document does not contain all of the risks related to the financial instruments. The information contained in this document in no case is produced to be adapted to neither individual investment needs, objectives, risk tolerance, knowledge and experience in financial markets nor to any other investor's investment decision considerations and constraints. The authors of the material personally as well as IPAS CBL Asset Management, its affiliates or representatives shall not be liable for the consequences of using the information and statements contained herein or any its part; that includes declining of any liability for any direct or indirect damages (including lost profit) and penalties as well, even in cases when the user of information has warned there could be any. The information and statements contained in this review are made in good faith based on information available to the authors and obtained from the sources believed to be reliable (Bloomberg, Reuters, other mass media, stock exchanges, central banks and statistic bureaus, information found on company websites, etc.) however, IPAS can not and does not guarantee accuracy and completeness of such information, and the authors of the

6 CBL Eastern European Select Equity Fund Elchin Jafarov Igor Lahtadir, CFA Performance History Inception Date* 22/09/ mln NAV % p.a. Front Load Fee Up to 2.5% LV CEESMCF LR Equity Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 The objective of the Fund is to achieve long-term capital growth by investing mainly in small and middle-sized companies equities (under 10 billion market capitalization) from the CEE region, which among others includes Turkey, Poland, Russia, Kazakhstan and Ukraine. Fund 1.6% -1.8% 7.9% -5.8% -16.3% % -6.4% -12.7% - Investment Process Top 10 Holdings Portfolio Statistics Top-down asset allocation Phosagro 6.7% Number of Holdings 32 Bottom-up individual stock selection KOC Holding AS 5.5% Average Security Weight 3.0% market monitoring Turkiye Garanti Bankasi 5.2% Median P/E 11.9 Monthly result evaluation Asseco Poland SA 5.0% Median P/B 1.4 Country and industry diversification Powszechna Kasa Oszczednosci Bank Polski 4.2% Weighted average Dividend Yield 4.0% Bank Zachodni WBK 4.1% Turkcell Iletisim Hizmetleri AS 4.0% Manager's Commentary for May Halyk Savings Bank of Kazakhstan JSC 3.8% Performance Statistics (3Y) Fondul Proprietatea SA/Fund 3.8% On the global front, the central event in May was the release of unexpectedly hawkish FOMC minutes, which resulted in sharp re-pricing of the Fed hiking expectations. While developed equity markets exhibited surprising resilience, emerging markets equities were hit by dollar strengthening and fund outflows, as MSCI EM index retreated by 1.3% in euro terms; whereas the euro depreciated by 2.8% against the. Unfortunately, all key Eastern European equity markets followed the suit and its aggregate gauge MSCI EM Europe IMI index retreated by 4.1% in euro terms. QIWI plc 3.5% Volatility (Standard Deviation, %) - Total 45.7% Sharpe Ratio - Sortino Ratio - Value-at-Risk (30d/ 95%)** - Country Breakdown Russia 28.7% 37.8% On the regional level, Turkish equities were hit the most with respective MSCI index plunging by 11.3% in euro terms, as unexpected resignation of Prime Minister Ahmet Davutoglu triggered another wave of political turmoil. Meanwhile, Polish market retreated by 5.3% in euro terms amid opposition protests and unimpressive earnings reports from local banking sector, which has been hit by additional taxes, sluggish loan growth, and limited progress towards resolving Swiss franc loan conversion issue. Russian equities were a bit more resilient (MSCI Russia 3.3%) thanks to stronger oil prices, as Brent advanced by 3.2% supported by supply disruptions that contributed to market rebalancing. Nevertheless, the sentiment around Russian equities deteriorated as state-owned enterprises managed to negotiate much lower dividend payout than 50% of IFRS, which was stipulated by the government s decree back in April. The Fund declined by 1.8% during the month. The bulk of losses came from Turkey, followed by Poland and Central European region. Within the latter, Austrian Raiffeisen Bank International showed particularly poor performance after reporting weak financial results and announcing that it was considering a merger with its parent company RZB AG in order to boost capital requirement ratio. On the other hand, the largest positive contribution came from Kazakhstan, where shares of Halyk Savings Bank rallied from depressed levels. Also, our investments in Russia and the Baltics positively impacted the Fund s results, thanks to strong performance in the shares of software company Luxoft and Siauliu Bankas, respectively. Turkey Poland Romania 5.5% Ukraine 3.9% Kazakhstan 3.8% Austria 3.4% Hungary 3.2% Czech Republic 2.4% Estonia 2.3% Lithuania 2.2% 4.0% Currency Breakdown 18.6% 22.1% 51.2% 15.5% 12.0% 8.7% 8.2% 6.7% 4.9% 2.3% 4.0% May was a busy period in terms of trading activity. Following price correction and media reports that Polish government might consider abolishing CHF loan conversion plans and instead offer other benefits for bank customers, we increased position in Bank Zachodni, as well as tactically traded PKO Bank shares. In Turkey, we bought additional shares of Turkish Airlines and opened position in airport operator TAV, thus gaining exposure to gradual normalization of air traffic through the country. We also disposed of Halk Bank shares, as we see risks from the US-led investigation against the bank s former business partners. Meanwhile, in Russia we accumulated shares of Qiwi, as we believe that regulatory concerns are overdone. On the other hand, we took additional profits in MTS due to rich valuations. Looking forward, we expect external factors such as the Fed s rate decision, political events in Europe, and oil price direction to impact the performance of risk assets and Eastern European equities in particular. At the same time, heterogeneous nature of the investment universe provides scope for bottom-up idea generation, which we are going to exploit. Manager's Commentary PLN for April TRY 10.1% 8.8% RUB 3.6% HUF 3.2% CZK 2.5% GBP 0.5% 20.1% This document or any its part shall not to be regarded as an offer, confirmation nor undertaking to enter any type of legal commitment. This document is for information purposes only, and shall not be considered as marketing/advertising message, public offer, investment advice nor a recommendation to buy, hold, sell any of the mentioned financial instruments nor participate in any of the related activities. The information contained herein is not an investment analysis, investment research nor annual/semi-annual report required by laws and regulations; further, the document does not contain all of the risks related to the financial instruments. The information contained in this document in no case is produced to be adapted to neither individual investment needs, objectives, risk tolerance, knowledge and experience in financial markets nor to any other investor's investment decision considerations and constraints. The authors of the material personally as well as IPAS, its affiliates or representatives shall not be liable for the consequences of using the information and statements contained herein or any its part; that includes declining of any liability for any direct or indirect damages (including lost profit) and penalties as well, even in cases when the user of information has warned there could be any. The information and statements contained in this review are made in good faith based on information available to the authors and obtained from the sources believed to be reliable (Bloomberg, Reuters, other mass media, stock exchanges, central banks and statistic bureaus, information found on company websites, etc.) however, IPAS can not and does not guarantee accuracy and completeness of such information, and the authors of the