13.06.2013

Marko Misulic,

Portfolio Manager

NFD Aureus Invest

A commodity powerhouse with one of the largest domestic markets on the planet, vast mineral wealth and strong economic fundamentals, Russia and the CIS is an investment region that is impossible to ignore. Investing in equity securities and equity-related securities in or exposed to growth in Russia, Ukraine and Central Asia, the WIOF Russia and CIS Performance Fund offers investors access to the region’s enormous potential. As the Fund’s portfolio manager, Marko Misulic, points out: “With rapidly-growing FDI, large numbers of undervalued companies with strong profit potential, a vast and expanding consumer market and its position as a global commodity giant, Russia and the CIS is an enticing region for investors.”

 

REGIONAL STRENGTH

The region’s main drivers – Russia, Kazakhstan and Ukraine - are now in stable macro shape and each country offers investors exceptional opportunities:

 

RUSSIA is one of the world’s biggest oil producers, has the largest proven reserves of natural gas in the world and the second largest reserves of coal on the planet. It also has a rapidly growing consumer market and is poised to become Europe’s largest consumer market by 2018; retail spending has averaged more than USD140bn annually in the last decade and is set to rise with conditions in place to sustain that growth. Meanwhile, authorities are moving to re-align the economy and decrease the country's over-reliance on oil and gas. Russia’s financial infrastructure is being reformed, including the recent introduction of a central depository, to provide greater access to the local market, attract more foreign capital and boost stock valuations. And its accession to the World Trade Organisation (WTO) has not just provided a short-term boost to investor sentiment towards the country, but will have long-term benefits for transport and consumer stocks as well as companies in other sectors which rely on expensive machinery imported from abroad.

 

 

UKRAINE, as an emerging free market economy, is undergoing rapid growth and industrialisation, but its stocks remain undervalued. Its agricultural potential is enormous - Ukraine is already one of the world’s largest producers of food staples such as grain and sugar - with the sector offering attractive medium and long-term opportunities. It also has an abundance of natural mineral resources and is one of the world's most important mineral producers.

Ukraine has historically been grossly undercapitalized and the country offers larger returns per USD invested than most other countries in the region, according to top investment experts. Meanwhile, its energy sector also has massive potential and has already attracted significant investment inflow.

 

KAZAKHSTAN has an abundance of natural resources and has some of the largest mineral resources in the world. Unlike some other countries in the region, Kazakhstan offers political stability. Legislation and measures have been implemented to improve the business climate in the country, including reducing red-tape for businesses, improved law enforcement and judicial efficiency and changes to tax and customs administration. Meanwhile, the country is continuing to attract FDI – according to official figures much of the 160 billion USD of FDI that it has attracted since 1993 has come in the last five years. And the government has created a series of specialist institutions, subsidies and investment incentive packages to facilitate industrial development, economic stability and create attractive conditions for investors in high-priority sectors such as oil processing and infrastructure, mining, the nuclear industry, engineering, IT and communications and others.

 

 

INHERENT VALUE

The region also offers inherent emerging market investment value. Economically, CIS countries still lag far behind their European peers, implying plenty of space for further growth. Other fundamentals in the region underline its attractiveness for investors: projected economic growth rates outstrip those of the developed world while the political environment – a significant risk factor for investors in the past - is becoming more stable.

 

OUTLOOK

In Russia, barring any major global events, the domestic macro backdrop is expected to remain quite stable for the rest of this year and economic growth will be driven by expansion in the domestic consumer and other sectors. Meanwhile, the Ukraine faces some challenges with economic growth forecasts having recently been slashed as the country continues to struggle in a recession amid the slow pace of economic reform and slack external demand for Ukrainian products. In Kazakhstan, economic growth is expected to gain pace again with GDP growth in real terms for 2013 forecast to come in at just under 6%. The drivers behind this growth will most likely continue to be household expenditure and gross fixed capital formation.

 

INVESTMENT ADVISER

The Fund’s investment adviser is NFD Aureus Invest - the largest private asset management company in Croatia. Boasting one of the most diversified product portfolios among asset management companies in the region, it is also recognized for its innovative asset management concepts and technologies. The company has developed custom-made portfolio optimization models which combine fundamental and quantitative investment strategies aimed at reducing the subjective decisions of fund managers as part of an active management stock picking process.

 

IMPORTANT NOTE: This report has been prepared for information only, and it does not represent an offer to purchase or subscribe to shares. World Investment Opportunities Funds (“WIOF”) is registered on the official list of collective investment undertakings pursuant to part I of the Luxembourg law of 17 December 2010 on collective investment undertakings as an open-ended investment company. WIOF believes that the information is correct at the date of production while obtained from carefully selected sources considered to be reliable. No warranty or representation is given to this effect and no liability can be assumed for the correctness or accuracy of the given information which may be subject to change at any time, without notice. Past performance provides neither a guarantee, nor an indication of future performance. Value of the shares and return they generate can fall as well as rise. Currency fluctuations, either up or down, may also affect value of the investment. Due to continuing market volatility and exchange rate fluctuations, the performance may be subject to significant changes over a short-term period. Investors should be aware that shares in the financial instruments entail investment risks, including the possible loss of the invested capital. Performance is usually calculated on the basis of the relevant NAV unless stated otherwise. Performance shown does not take account of any fees and costs associated with subscribing or redeeming shares. It is assumed that all dividends were reinvested. WIOF prospectus is available and may be obtained through www.1cornhill.com. Before investing in any WIOF Sub-fund(s) investors should contact their financial adviser/legal adviser/tax adviser and refer to all relevant documents relating to the WIOF and its particular Sub-fund(s), such as the latest annual report and prospectus that specify the particular risks associated with the Sub-fund, together with any specific restrictions applying, and the basis of dealing. In the event investors choose not to seek advice from a financial adviser/legal adviser/tax adviser, they should consider whether the WIOF is a suitable investment for them.