Portfolio Update

 
TIDMEST TIDMESTZ 
 
THE EASTERN EUROPEAN TRUST PLC 
 
All information is at 29 FEBRUARY 2012 and unaudited. 
 
Performance at month end with net income reinvested 
 
                                  One    Three       One    Three      *Since 
 
                                Month   Months      Year    Years    30.04.09 
 
Sterling: 
Share price**                    8.7%    12.2%     -11.5%    205.1%     90.4% 
Net asset value (undiluted)**    7.8%     9.9%     -15.6%    177.1%     84.6% 
MSCI EM Europe 10/40(TR)         6.9%    10.4%      -8.3%    144.7%     73.5% 
US Dollars: 
Net asset value (undiluted       9.1%    11.6%     -17.1%    210.5%      99.0% 
MSCI EM Europe 10/40(TR)         8.2%    12.2%      -9.9%    174.2%      87.0% 
 
 
Sources: BlackRock and Standard & Poor's Micropal 
 
 
* BlackRock took over the investment management of the Company with effect from 
1 May 2009. 
 
** Net asset value and share price performance includes the subscription share 
reinvestment, assuming the subscription share entitlement was sold and the 
proceeds reinvested on the first day of trading. 
 
 
At month end 
 
Net asset value - capital only:               302.86p 
Net asset value*** - cum income:              303.75p 
Net asset value - cum income (diluted for 
subscriptionshares):                          303.75p 
Share price:                                  278.00p 
Subscription share price:                       0.55p 
Total assets^:                                GBP141.8m 
Discount (share price to cum income NAV):        8.5% 
Gross market exposure of CFD portfolio as 
a percentage of net asset value:               107.7% 
Net yield:                                        n/a 
Ordinary shares in issue^^:                46,180,713 
Subscription shares:                       10,040,005 
 
 
***Includes year to date net revenue equal to 0.89p per share. 
 
^Total assets include current year revenue. 
 
^^Excluding 6,900,000 shares held in treasury. 
 
 
 
Benchmark 
 
Sector Analysis  Total Assets (%)  Index (%)  Country Analysis  Total Assets (%) 
 
Energy                      38.2       36.7   Russia                       53.0 
Financials                  28.2       27.5   Turkey                       15.3 
Telecommunications           9.3        9.6   Poland                       13.8 
Materials                    9.2       11.1   Czech Republic                5.6 
Utilities                    6.1        7.3   Hungary                       5.1 
Health Care                  3.3        0.7   Kazakhstan                    4.6 
Consumer Discretionary       1.6        1.1   Turkmenistan                  1.8 
Consumer Staples             1.4        4.2   Ukraine                       0.5 
Information Technology       1.3        0.3 
Industrials                  1.1        1.5 
Long Position                1.6         -    Long Position                 1.6 
Short Positions             -6.4         -    Short Positions              -6.4 
Net current assets           5.1         -    Net current assets            5.1 
 
                           -----      -----                               ----- 
 
                           100.0      100.0                               100.0 
 
                           =====      =====                               ===== 
 
 
 
Ten Largest Equity Investments (in % order of Total Market value) 
 
 
 
                                                        Total Market 
Company                   Country of Risk                    Value % 
 
Gazprom                        Russia                        9.4 
Sberbank                       Russia                        8.6 
Lukoil                         Russia                        8.2 
Turkiye Garanti Bankasi        Turkey                        5.4 
Novatek                        Russia                        5.1 
Powszechny Zaklad Ubezpieczen  Poland                        4.0 
CEZ                            Czech Republic                3.5 
Sistema                        Russia                        3.5 
Uralkaliy                      Russia                        3.1 
Turkiye Halk Bankasi           Turkey                        3.1 
 
 
Commenting on the markets, Sam Vecht, representing the investment 
 
Manager noted; 
 
Market Overview 
 
In February, Emerging European equities continued their strong start to the 
year with the MSCI Emerging Europe 10/40 index returning 8.2% in USD terms. 
Prospects of a second bail-out for Greece and easing of pressure on Italian 
bond markets proved to be positive for risk assets globally as did the 
announcement from the ECB of a second round of Long Term Refinancing Operations 
(LTRO). 
 
Russian equities were strong performers over the month, building on gains since 
the start of the year ahead of Presidential elections, held at the beginning of 
March. Pre-election opinion polls reflected the view that strong expressions of 
support for Vladimir Putin would translate into a decisive victory in the first 
round of voting. The strength of the Russian market suggested that investors 
were confident that political risk would be alleviated and that a strong 
mandate from the electorate in an environment of high oil prices would be 
positive for Russia. 
 
Since the month end, Putin was duly re-elected with 64% of the vote. There have 
been reports of irregularities and anti-Putin protests in Moscow, where his 
support is much lower than in the regions, have grabbed the headlines. However, 
despite doubts surrounding the electoral process, Putin is the most popular 
politician in Russia and the legitimacy of his position is not in doubt. 
 
Turkey underperformed the index as investors focused on the headwinds from a 
current account deficit further burdened by the high oil price. The Turkish 
economy has been expanding at an unsustainable rate and inflationary pressures 
continue to build. 
 
 
Portfolio Performance 
 
The Company returned 9.1%, in February, outperforming the index MSCI Emerging 
Europe 10/40 by 0.9% in US Dollar terms. 
 
Stock selection, particularly in Russia and Turkey, was the main driver of 
outperformance over the month. 
 
Russian internet company, Mail.ru, was a significant outperformer in February, 
the stock driven higher by the announcement of results for 2011 which exceeded 
analysts' expectations thanks to successful user monetization strategies. The 
company, which also has stakes in Facebook and Groupon, reported an increase in 
net income of 160% year-on-year. 
 
Russian energy company, Volga Gas, also performed well, the share price rising 
over 30% in February, after a positive operational update indicating that the 
company's key Vostochny-Makarovskoye gas field development is continuing to 
progress. 
 
Detracting from performance was Polish utility PGNiG, which controls 
distribution of gas in Poland. The company has come under pressure from 
increases in imported gas prices which the company has been prevented from 
passing through to the domestic market by the Polish regulator. 
 
 
Portfolio Activity 
 
We added to holdings in Poland in February by initiating new positions in the 
consumer discretionary and utilities sectors. 
 
TVN is a major Polish commercial television network, the shares of which were 
sharply down following a weak trading announcement. We believe that the current 
valuation represents an attractive opportunity to own a media asset which has 
the rights to show matches at the forthcoming UEFA European Championships, 
which Poland will co-host with Ukraine 
 
Power generation company, PGE, had underperformed the market rally and 
following financial results, which were in-line with market expectations, the 
team took the opportunity to reduce the underweight position in the stock. 
 
We also added to the holding in Hungarian Pharmaceutical company Gedeon 
Richter. The company has announced positive results from drug trials focusing 
on the treatment of mental health problems. 
 
We took some profits in Russian energy company, Surgutneftegaz, after the stock 
performed well with oil price strength. 
 
 
Outlook 
 
The discount of Eastern European valuations to global equity markets remains 
high at over 45%. Valuations are below historical averages, offering 
significant upside on any positive news-flow and scope for a re-rating when the 
economic background improves. 
 
Following the re-election of Vladimir Putin as Russian President, the question 
is 'what next?'. The world has changed since Putin's first and second terms and 
so too have Russian politics. The opposition has found its voice and the 
required response from Putin will have to be far more nuanced, taking into 
account protestors' concerns, if he is to rediscover the popularity he once 
enjoyed. 
 
Despite the recent rally in world markets, it is important to remember that 
Eastern European economies are highly competitive with undervalued currencies, 
less debt, lower levels of corporate taxation and lower labour costs than 
Western Europe. 
 
19 March 2012 
 
 
 
 
 
 
 
END