Estonia, Latvia and Lithuania are one of the leading countries in Euro zone by GDP growth for the last couple of years with considerable impact from increased consumer spending and export oriented sectors. Baltic economies are impacted by Scandinavian banks which have more than 70% market share, led by Swedbank, SEB, Nordea, DNB and Danske Bank. Scandinavian companies are also major players in the Baltic Telecom sector were names like TeliaSonera, Tele2 have dominant market positions.
Baltic region is not a typical emerging market. Average GDP per capita (IMF data) in the Baltics is around 19.5 thousand USD, which is almost 4 times higher than emerging markets average. Baltic countries stay in high positions both in World bank doing business index (Estonia and Latvia among TOP 15 countries in the world) and in Economic freedom index (Estonia and Lithuania among TOP 20 countries).
One of the best performing stock markets for the last 3 years was just across the Baltic Sea. NASDAQ OMX Baltic Benchmark – the main index for Estonian, Latvian and Lithuanian equities increased more than 58% since the beginning of 2015 and produced annual return of more than 16.5% including dividends.
Baltic stock market is still undiscovered and unresearched by global investors. Even after significant stock price increase for the last 3 years companies are still relatively cheap. Most of the NASDAQ OMX Baltic Benchmark constituents are leading companies in Baltic states, some of them with close to monopolistic position in the market. For example, leading ferry operator in the Baltic Sea – Tallink Group has a dominant position in routes Helsinki – Tallinn and Riga – Stockholm. Company’s stocks are much cheaper relative to peers on the other European routes. Other companies like casino operator – Olympic Entertainment Group, or dominant player in clothing retail sector – Apranga has business models with cost advantages due to their scale. Majority of the companies have a dividend yield of over 5% and are valued at about half of the valuations of companies in Nordics or Western Europe.
Of course, every emerging market has it’s risks. Companies in the Baltics are quite small in size, few companies have majority owners and that limits free float and liquidity in the stock market. With all the risks taken into account, the Baltic stock exchange is a good opportunity to invest in fastest growing region in the Eurozone where Scandinavian influence in corporate governance is noticeable and increasing.
About INVL Baltic Fund
Fund was launched in 2005 and has been managed by INVL Asset Management since 2013. The fund consists of a concentrated portfolio of Baltic companies (about 20 holdings). Fund is actively managed, with fund managers actively participating in annual shareholder meetings and communication with the management of the companies they invest to.
A mutual fund’s past results only show the results of the fund’s activities for a past period. Past results do not guarantee future performance. The management company does not guarantee the profitability of investments.
Before making a decision to invest, you should personally or with the help of investment advisors assess the selected fund’s investment strategy, applicable fees and all investment-related risks. You should also carefully read the fund’s Rules, Prospectus and Key Investo Information Document. The latest documents and values of mutual fund units are published on the website www.invl.com.