A Russian REIT and a Polish Play

03/26/2014 11:30 am EST

Focus: GLOBAL

Vivian Lewis

Editor and Publisher, Global Investing

International investing expert Vivian Lewis, editor of Global Investing, turns her eye toward the turmoil in Ukraine, its impact on investors, and some favorite investing ideas in Russia and Poland that offer contrarian value.

Steve Halpern: We're here today with Vivian Lewis, Editor of Global Investing. How are you doing today, Vivian?

Vivian Lewis: Great.

Steve Halpern: Welcome. I'd like to talk to you a little about the Global Investing Newsletter, one of the top performing newsletters in the industry. While you search worldwide for investments, you focus on stocks that are readily available for you as investors to buy. Can you explain that strategy?

Vivian Lewis: Yes, when we started, it was just the beginning of something called the American Depository Receipt, which is a thing that banks create from foreign stocks, which are then tradable in the US, so that is our main focus.

But we also include Canadian shares, which are usually offered by US brokers, and increasingly, in the last few years, we've added shares that only trade on foreign markets, but, to which, Americans using discount brokerages can gain access and where the brokerage commission is not excessive.

Steve Halpern: Now, would like Hong Kong and London be examples of that?

Vivian Lewis: Exactly.

Steve Halpern: Okay, now your portfolio is also widely diversified in terms of geography. How important is this type of global diversification in your mind?

Vivian Lewis: Well, it's not diversified for the sake of diversifying. It's diversified because I'm looking for things that we cannot own in the US, or that have particularly interesting growth, or yield characteristics, compared to the mainstream US market.

Steve Halpern: Now, given your global expertise, I'd like to touch on the current turmoil in the Ukraine. How much of an impact does this have on the global markets and does it raise concerns for investors in emerging markets?

Vivian Lewis: Well, first of all, you should never generalize about emerging markets. They're the BRICS that was invented by Goldman Sachs a few years ago. The BRICS were Brazil, Russia, India, China and sometimes South Africa. There is very little that applies across the board to these countries.

The major entity affected by the current crisis is, of course, Russia. There are no tradable Ukrainian ABIs out there and Russia is not really an emerging market. It's a re-emerging market. It's an industrial country with an educated population, and significant gross national product, and it's coming out from communism, or, at least, it was, and that's what made it different and fast-growing.

Steve Halpern: Now, you recently took a position in one Russian company called Raven Russia Limited (LSS:RUS). Could you tell us about that idea?

Vivian Lewis: Well, I got frustrated, because I wanted to get more access to lower risk investments in Russia, and the area, and the best known stocks were being dumped by panicked investors and also by mutual funds, so I was looking for something that had been spared.

And Raven Russia, which trades in dollars in London—it's kind of weird; its ticker symbol is RUS in Britain and it's in dollars—so there's no exchange risk or there isn't any obvious exchange risk.

It's a real estate investment trust and it invests in warehouses and logistics, in currently three Russian cities, mostly Moscow in six sites, St. Petersburg and also Rostov on Don, which is halfway down the road to Ukraine.

And it then builds high-grade commercial hubs—that's warehouses and shipping facilities for companies in the market, not for the military, of course. Most of the tenants are foreign companies, which are very much present in Russia, because Russians want to be like everyone else, even though they also want to go back to the Cold War.

And I assume that Vladimir Putin, for all his nastiness, doesn't want to return Russia to Soviet era markets and he will not try to get rid of companies that sell goods that Russians like, like Dannon, the yogurt firm, which is French; Oriflame Cosmetics, which is from Sweden, Leroy Merlin, which is do-it-yourself shops, also French; Suzuki cars; Amway goods from the USA; and another stock, we actually own, l'Occitane in Provence, which is maker of hand creams and other skin care.

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Now Russian people want this stuff and these are the people using the logistics facilities of Raven Rus, so I think they'll do well. Last year, profits rose 103% and the dividend was raised by one-third and, you know, it's a growth stock, and its chairman last week said: “It's business as usual in Russia”—and I hope he's right.

Steve Halpern: Now, you've also taken a position in an interesting ETF that's indirectly related to this situation and that's the MSCI iShares Poland Investable ETF (EPOL). Could you explain how the moves that Putin is making have impacted, at least, investor's sentiment regarding Poland and why you initiated a position in this ETF?

Vivian Lewis: Well, there was a closed-end fund that we owned called CEE, which is Central European Russia and Turkey Fund and we bailed out of it on a timely basis, and I wanted to be more selective in the region.

So EPOL, which is the ticker symbol for this MSCI Poland Investable iShares ETF—a big mouthful—is invested in Poland and only in Poland. Now Poland has a lot of very important characteristics.

First of all, it's big and it has a lot of people and it's the sixth largest economy in the European Union. It's a member of NATO. It also has a lot of clout in the USA. It's not an accident that our vice-president yesterday, made a remark about how Putin will have to be stopped from taking over countries and he did so in Warsaw.

Poland is gaining a lot of clout, first of all because there's plenty of Americans who are of Polish extraction and they let their congressional leaders know what they think.

Second of all, there was a guy named Kosciuscko, a Polish immigrant who was a General on our team during the American Revolution, and when US troops arrived in France in 1917, they said “Lafayette nous voila” and when we do give help to Poland, we say “Kosciuscko,” or “here we are.”

Poland also had a key role in the breakup of the Soviet Union. It has been a member of NATO since 1999, but it helped break up the Soviet Union eight years before when the Warsaw pact broke down thanks to two very important Poles, Lech Walesa and Pope John Paul II.

So we have much more enthusiasm here in the US as does most of the European community about investing in Poland and helping Poland than we do about Ukraine, which is a more messy and ambiguous kind of place.

So Poland will become a kind of a poster child for western economic and political progress and they're going to get money, but they also will have to make some changes and these are actually in the interests of business in Poland.

The first thing they have to do is make it easier to fire people, which will make it easier to hire people.

Then they have to integrate the countryside, which is still back in the Middle Ages by building roads and railroads and they have to do this without corruption, which is one of the characteristics of that part of the world and they also have to do it without too much bureaucracy, and they also have to privatize.

Poland is full of nationalized so-called strategic companies, which are a relic of the old communist day. LOT Airlines is nationalized. Many banks are state controlled; coal mines are state controlled.

This is something left over from Comecon. They've got to get rid of this. All these things mean that there's a potentially great boom in business in Poland, which is what we are buying with EPOL.

Steve Halpern: But, we really appreciate you taking the time today. These are two fascinating ideas. Thanks for joining us.

Vivian Lewis: Thank you.

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