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Geneva boutique targets Europe's orphan markets with fund launch

Geneva boutique targets Europe's orphan markets with fund launch

Geneva asset management boutique Quaero Capital has launched a ‘new Europe’ fund, extending the existing European small- and mid-cap strategy to include Eastern Europe and peripheral states.

The Quaero Capital – New Europe strategy has been developed by fund manager Arrash Zafari over the past three years since he joined the firm. In 2014, Zafari started working on the Quaero Capital SMID team run by Philip Best and Marc St John Webb.

The ‘new Europe’ fund targets Eastern Europe but also peripheral states including Greece, Turkey and Russia, in order to take advantage of significant under valuations in the stocks.

On the subject, Zafari said: ‘Western Europe still has some orphan stocks, but Eastern Europe has some orphan markets.'

Stocks in Eastern Europe typically feature single digit price/earnings ratios, price-to-book values of less than one and dividend yields of more than 5%, the group pointed out in a statement.

‘There are a significant number of high quality, small businesses across Eastern Europe. Among them are those which offer all the advantages that we see from companies in more mature markets but are simply ignored by those more inclined to go for the big names,' Zafari said.

‘In my view, these large East European companies are the ones most prone to external risks, including political risk, and that has coloured investor sentiment for the wider market.’

Eastern Europe remains largely off the radar for mainstream investors, he said, as it had the highest proportion of fund closures of any region worldwide.

This is despite significant investment being made by the European Union, particularly in Poland which is receiving more than €70 billion in support in the 2014 to 2020 budgetary cycle. Estonia, Hungary, the Czech Republic and Bulgaria are all getting significant support from the EU.

‘Smaller Eastern European companies are left alone to get on with what they do best, and many are seeking to develop along the same lines as their western European counterparts. I therefore believe that the opportunities offered by New Europe will provide a new dimension to our European small and mid-cap strategies, and a new dimension for investors in the UK,' Zafari said.

The new fund is highly concentrated with its 20 top holdings representing around 70% of the portfolio.

The fund is registered for sale in Switzerland, the UK, Luxembourg, Germany, Spain and Singapore.

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