Fund that beat 90% of its peers is now betting on Greek banks

But for East Capital, which in 2016 delivered a 36 percent return and beat 90 percent of its peers, increasing exposure to the euro zone’s most beaten up economy is precisely the right thing to do.
“Banks have the most upside”, Tim Umberger, deputy head of Eastern Europe at East Capital, said in an interview in Oslo on Monday. “We built a position in 2016 because after three rounds of capital increases on the basis of severe stress tests their balance sheets look more robust, while we think valuations are very low.”

East Capital Eastern Europe Fund, which manages about 230 million euros ($250 million), holds Alpha Bank AE and Eurobank Ergasias SA, which is one of the fund’s largest active positions. The Moscow-based manager expects the profitability for Greek banks to improve in 2017.
Greece is still in talks with its creditors about the country’s bailout review. Last week a meeting between the finance ministers of Greece and Germany ended in disagreement. Two-year bond yields have risen to the highest since June.
“Greece is the most complicated one,” said Umberger. “If there’s progress in the negotiations with the creditors and if they get included in QE then Greek financial assets will perform very, very strongly.”
Umberger last year beat the 30 percent return of his benchmark, the MSCI EM Europe 10/40 Index.
Eastern Europe in general is “very attractive” with low valuations, high dividend yields and growth, according to Umberger, who’s from Slovenia. The fund is focusing on the consumer sector and holds companies such as X5 Retail Group NV, Aeroflot PJSC and Internet platform Wirtualna Polska Holding SA.
The “most straight-forward investment case” in Eastern Europe is Russia as the economy is recovering from a recession and the geopolitical situation is looking to improve, Umberger said.
“2017 will be a positive year”, he said. “Inflation is falling, which means there’s a scope for the central bank to cut the rates. The yield will come down and this will then support the equity market. The currency is more likely to strengthen a little bit.”

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