"We are now recommending that investors consider emerging market funds," says Walter Frank, editor of MoneyLetter. Here, he looks at his latest fund pick, US Global Investors Eastern Europe, and talks with the fund's investment director, Julian Mayo.
"Emerging markets, in practice, are a hodge-podge, and include regions such as Eastern Europe and Turkey, Russia, and Asia ex-Japan. These regions typically march to different drummers. Sometimes, though, there is a broad upswing in economic activity that is felt by many of the emerging markets at the same time. This happens to be one of those times. Indeed, there is a growth pulse now coming from China and India that is being felt by most emerging markets throughout the world.
"London-based Charlemagne Capital is a specialist in emerging markets. Founded in 1991, it has deep experience in these regions and sees significant opportunities in Eastern Europe and the former Soviet Union. The firm is the sub-advisor to our latest buy recommendation, US Global Investors Eastern Europe Fund (EUROX). Since 2001, the fund’s calendar year total returns have consistently placed well within the top 10% of its category. The fund posted superb returns of 61.4% in 2003 and 52.4% in 2004, and is ahead by 11.6% through March 11.
"US Global Investors Eastern Europe is a team-managed fund. I
spoke with Julian Mayo (pictured at left; click on photo for more information),
investment director at
Charlemagne, about the investment process. He notes, "Our process is very bottom
up. We look for our best opportunities—ideas
we generate internally as a result of our contacts and our ongoing experience in
the markets. We meet with the management of each of the companies and question
them in detail. We undertake detailed analysis on the outlooks for these
businesses, including the sustainability of their business models, the outlook
for profits, cash flows, balance sheets, and so on. The next step is to set a
price target and look for those stocks that are most attractive on a risk
adjusted basis.’
"The portfolio is very focused with only about 30 stocks. And the team is not hesitant to take large positions in its favorite holdings. Says Mayo, ‘With a focused portfolio, you have to make sure you are investing in your best ideas.’ Many of the markets that the fund invests in were up strongly last year. Hungary and Czech Republic advanced over 80%, with Poland up 59%. The laggard was Russia, ahead by 13%. Despite these gains, Mayo states, ‘If you look at the outlook for the region as a whole from the stock level, we still see a lot of value.’ Mayo sees Russia as particularly attractive. Meanwhile, a number of countries recently joined the European Union, offering new opportunities, and the team finds Turkey particularly intriguing."
