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A practitioner's view on investing in CEEThomas Motsch, Fund Manager - Erste-Sparinvest KAG - Austria
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Responsible growth potential at our next-door neighbours
A practitioner's view on investing in CEE
CEE Overview
The ESPA VINIS STOCK EUROPE EMERGING Fund
Our SRI Methodology
Contact Details
Agenda
ESPA WWF STOCK UMWELT ESPA VINIS CASHESPA VINIS BOND
ESPA VINIS STOCK AUSTRIA
ESPA VINIS STOCK EUROPEESPA VINIS STOCK GLOBAL ESPA WWF STOCK CLIMATE CHANGE
2001 2002 2003 2004 2005 2006 2007 2008
ESPA VINIS STOCK EUROPE EMERGING
ESPA’s fund management has long term experience in the CEE region as well as in SRI
Timeline Responsible Investment Funds
WWF… Partner for theme fundsVINIS… Brand of sustainable funds Verantwortung (Responsibility), Innovation,
Nachhaltigkeit (Sustainability), Investment, Sicherheit (Safety)
Estonia
Latvia
Lithuania
Poland
Czech Rep.Slovakia
HungarySlovenia
Turkey 2014+
Romania
Bulgaria
Croatia
Ukraine
Norw
ay
Belarus
BosniaSerbia
Albania Mac
Russia
Switz.
EU 15
EU enlargement 2004
EU enlargement 2007
negotiation for enlargement
possible candidates for enlargement
extended investment universe
Investment Universe
The investment Universe comprises countries of Central Eastern Europe including Russia
Lessons learned
- hardly any “dark green” pure play stocks listed on the stock exchanges,
(renewable energy projects are not listed)
- sustainability performance shows east-west slope:
the more you go east, sustainability plays a subordinate role,
subsidiaries of Western companies tend to outperform from an ESG point of view
- global recession has revealed particular economic facts in CEE:
consumer demand was irresponsibly high debt-financed,
on a company level equity ratios seem higher in CEE than in Western Europe
- improvements in sustainability performance tend to be more a
company specific phenomenon than an overall trend
CEEConsumer
demand
Infra-structure
Investments
Commodities
Our fund’s structure focuses on growth themes
Main Growth Themes- Increase in demand- Growing traffic- Infrastructure improvements to
achieve EU levels
- AM investments out of the region still in early stages
- AuM showing enormous growth rates- High potential: Insurance & service sector,
banks
- Catch-up potential- Upper middle class
established
- Substantial resources inRussia and former CIS states
CEE Overview
The ESPA VINIS STOCK EUROPE EMERGING Fund
Our SRI Methodology
Contact Details
Agenda
The SRI research is based on exclusionary and stakeholder/best-in-class criteria
Stakeholder criteria include the assessment of six stakeholder groups:Employees, Society, Customers, Market partners, Investors, Environment
Exclusionary criteria
• Armaments• Nuclear Energy• Addictive Drugs• Gene Technology• Gaming
Stakeholder Criteria/
Best-in-Class
Analysis & evaluation are undertaken on 4 different levels • Principles & Strategies• Management Systems & Organisation• Products & Services• Program, Activities & Results
Details on Climate Change issues in CEE
- Climate change is an important issue for assessing ESG performance
in CEE (criteria are emission of gases like CO² , Methane, CFCs; energy
consumption & sources; measures to reduce the impact on climate change)
- high number of companies focusing on natural resources and energy in CEE,
we select only the “cleanest companies” in those controversial sectors
- Awareness for climate change in CEE still on low levels but improving
- Average rating of climate change indicators in CEE region only slightly
below Austrian levels (B- in Austria versus B-/C+ in CEE)
Companies are rated based on a scale that ranges from A+ to C-
The (SRI) evaluation scale and the CSR rating process behind range from the grade ‘A+’ (innovative) to the grade ‘C-‘ (strongly regressive). The ratings are based on a point system, where ‘A+’ is equal to 100 points (upper limit) and ‘C-‘is equal to -100 points (lower limit).
SRI Evaluation Scale
100 80 60 40 20 0 -20 -40 -60 -100
RATINGA+ A A- B+ B B- C+ C EX NR
INDICATIVE RATING
INVESTABILITY
BEST IN CLASS
NO
C-
c
YES
a
ab
b
bc
Every company is screened and rated based on a variety of criteriaExample for Rating Methodology
VINIS Management Approach – four layers
Total Universe
Sustainable Universe
Portfolio
Ratios, Fundamentals
Technical Analysis
Ethics-Committee / Stakeholder Know-how
SRI Sector Research
Environment & Stakeholders CG/ Ethics
Investment Board / Investment Know-how
Academic Cooperation
Su
sta
ina
bili
ty -
Fil
ter
ERSTE-SPARINVESTFinancial Rating
Voting & Engagement Process
Research SRI-Team ERSTE-SPARINVEST
Sp
ecia
lise
d
Rat
ing
-Ag
enci
es
HOLD
Ris
k M
anag
emen
t
Inve
stm
en
t -
Pro
cess
I
II
III
IV
Res
tric
tio
ns
Str
ateg
y/ In
pu
ts
Sector
Macro
Stocks
Total Universe
Sustainable Universe
Portfolio
Ratios, Fundamentals
Technical Analysis
Ethics-Committee / Stakeholder Know-how
SRI Sector Research
Environment & Stakeholders CG/ Ethics
Investment Board / Investment Know-how
Academic Cooperation
Su
sta
ina
bili
ty -
Fil
ter
ERSTE-SPARINVESTFinancial Rating
Voting & Engagement Process
Research SRI-Team ERSTE-SPARINVEST
Sp
ecia
lise
d
Rat
ing
-Ag
enci
es
HOLD
Ris
k M
anag
emen
t
Inve
stm
en
t -
Pro
cess
I
II
III
IV
Res
tric
tio
ns
Str
ateg
y/ In
pu
ts
Sector
Macro
Stocks
CEE Overview
The ESPA VINIS STOCK EUROPE EMERGING Fund
Our SRI Methodology
Contact Details
Agenda
Why to buy Emerging Europe?
- Growth expected to be higher in major Emerging Europe countries than in the US or Europe
- Exports still high in Emerging Europe countries despite reduction of dependency in last decade. Therefore growth in the CEE region is supported by a global economic recovery evidenced by leading indicators
- Low interest rates in developed countries and unprecedented liquidity forcing investors to look after higher yielding and riskier assets
- Emerging Europe equities are no longer cheap, but they are still priced at a 25% discount to European equities on a 12 months forward PE basis
ESPA’s Investment Process
Top-Down
Country-Allocation
TechnicalSentimentValuationMacroPolitics
_________150 Stocks
RiskmanagementRiskreports / Riskmonitor / Performance Attribution
InvestmentUniverse
Emerging-MarketsTime zone Eastern Europe
_________500 Stocks
Bottom-Up
Stock-Selection
TechnicalSentimentValuation
_________90 Stocks
Portfolio-construction
Absolute RiskExposure90%-100%
Active Risk
Implemen-tation
Trading
Buy / SellDiscipline
Portfolio
60-90 Stocks
Filter
LiquidityFilter
________150 Stocks
ESPA VINIS STOCK EUROPE EMERGING
Investment-Universe:
Currencies
Type and Style: Equity Fund, SRIISIN: (T) AT0000A09YL3Benchmark: MSCI EM Eastern Europe 10-40Management Fee: 180 bpsVolume as of 10/31/09: 6.9 Mio.EUR
Performance since 10/06/08
Performance as of 10/31/09 (since 06/10/08): relative Performance (MSCI Eur. Emerg.):Performance as of 10/31/09 (since 12/31/08):relative Performance (MSCI Eur. Emerg.):
- 25.83 % + 5.36 % + 47.98 % - 25.26 %
Vimpel Comm – RU MOL – HUHrvatske Telekom – CROGrupa Lotos – PL Novolipetskiy Metallurg – RU
6.41%6.38%5.38%5.13%4.74%
Magnitogorskiy Metallurg – RU Komercni Banka – CZ Cesky Telecom – CZ Magyar Telecom – HU Verbund – AT
4.73%3.92%3.77%3.46%3.17%
AustriaSloveniaCroatiaSerbiaHungary
Czech RepublicPolandRumaniaBulgariaTurkey
EstoniaLithuaniaUkraine Russia
Top Positions
30
40
50
60
70
80
90
100
110
ESPA VINIS Stock Europe Emerging MSCI EM Eastern Europe
HRK 11,8%EUR (Cash)
10,0%
RON 3,5%
LTL 0,4%
PLN 13,6%
HUF 11,3%
EUR 9,9%
USD 16,3%
CZK 8,6%
TRY 14,2%
RSD 0,3%
CEE Overview
The ESPA VINIS STOCK EUROPE EMERGING Fund
Our SRI Methodology
Contact Details
Agenda
Wolfgang PINNER, MBAHead of SRI team
Experience: 20 years
Funds:‚ESPA VINIS STOCK GLOBAL‘
‚ESPA VINIS STOCK EUROPE EMERGING‘‚ESPA WWF STOCK UMWELT‘
Martin CECH, CPMDeputy head of teamExperience: 19 years
Funds:‚ESPA VINIS CASH‘‚ESPA VINIS BOND‘
Robert HEIDINGER, CPMSenior Fund Manager - Equities
Experience: 8 years
Funds:‚ESPA VINIS STOCK EUROPE‘
Thomas MOTSCH, CIIASenior Fund Manager - Equities
Experience: 4 years
Funds:‚ESPA WWF STOCK CLIMATE CHANGE‘
‚ESPA VINIS STOCK AUSTRIA‘
Alexander OSOJNIKAnalyst
Experience: 4 years
ESPA SR Investments – Team
Contacts
ERSTE-SPARINVEST KAGInstitutional Distribution – International
Habsburgergasse 2, A-1010 Vienna, Austriawww.sparinvest.com
Stephan MolzahnSenior Manager
+43 50100 [email protected]
Albert StögerSenior Manager
+43 50100 [email protected]
Disclaimer
"This is an advertisement. Our languages of communication are German and English. The latest version of the Prospectus (and any changes thereto) has been published in the “Amtsblatt der Wiener Zeitung”, in accordance with the provisions of the Austrian Investmentfondsgesetz [Investment Funds Act]. Copies are available free of charge to interested parties at the registered offices of both ERSTE-SPARINVEST Kapitalanlagegesellschaft m.b.H. and Erste Bank der oesterreichischen Sparkassen AG. The most recent publication date and details of any other collection offices are published on the ERSTE-SPARINVEST KAG website (www.sparinvest.com). This document serves to provide additional information to our investors and reflects the knowledge of its authors at the time of going to press. Our analyses and conclusions are of a general nature and do not take into account the personal needs of our investors in terms of income, fiscal situation or attitude to risk. This is not a personal recommendation. It should be noted that past performance is not a reliable indicator of the future performance of a fund."
