the Fund's manager Colin McLean is preferring to invest in Eastern Europe and the Far East
The Scottish Value Trust (SVT) is maintaining its underweight position in the US, preferring eastern Europe and the Far East, with Russia, China and Japan its favoured regions.
In 2001, the trust, managed by Colin McLean and Donald Robertson, adopted a stance of concentrating less on index weightings and more on absolute performance, which McLean said has served it well over the past year.
In the 12 months to 2 December, the £97.7m trust is ranked seven out 33 in the global growth sector, falling 11.3% on a mid-to-mid basis, compared to the sector average return of -20.7%.
The NAV has fallen 15% over 12 months to 11 December, against a weighted average call of 16%
McLean said the emerging markets of Eastern Europe and the Far East, which account for 30% of the trust's assets, have registered positive performance for the year to date against substantial declines in more mature markets.
'The main reasons for this outperformance are twofold,' he added. 'Firstly, emerging markets generally did not participate in the excesses of the late 1990s and have not seen their markets de-rated to the same extent as those of developed countries.
'Secondly, these countries have, and are continuing to produce, GDP growth well in excess of the developed economies. They have also largely avoided the effects of the global economic slowdown.'
In the case of eastern Europe, McLean said, the convergence with western Europe continues apace, with corresponding contractions in the valuation gap. Eastern European countries have traditionally been valued at material discounts to their western equivalents, he noted, but there has recently been an increase in corporate activity, with western companies willing to pay to acquire exposure to these new markets.
The Far East, especially China, India and Taiwan, has benefited from the more developed countries exporting their manufacturing requirements to the low labour cost regions, he added.
'This, coupled with WTO entry for China, has ensured these countries, although still being impacted by the global slowdown, have managed to increase their market share with the ongoing possibility of them being able to push through price increases,' McLean said.
The trust is currently around 15% geared. McLean said although this may appear high in what is a difficult and volatile stock market environment, in excess of 25% of the portfolio is invested in non-directional investments such as hedge funds and hedged investments.
In addition, nearly 20% of the portfolio is invested in private equity/venture capital funds, which, McLean said, are typically relatively insensitive to stock markets, further reducing its exposure to global equity markets.
The trust is invested in some geared warrants, with the largest positions being Baring Emerging Europe, Merrill Lynch European and Gartmore European.
Consequently, McLean estimates, the trust's underlying exposure to global stock markets is around 90%.
The trust's discount on 11 December 2002, stood at 12.8%, compared to a sector average discount of 8.2%.
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