A focused, active portfolio
The Eastern European Trust PLC is managed by Pictet Asset Management Limited and offers shareholders the opportunity to enjoy capital growth from a diversified portfolio of companies in Central and Eastern Europe, including Russia and Turkey. The manager's investment approach is to run a focused, active portfolio of approximately 100 active positions. Big, liquid, blue chip stocks account for about half the portfolio. The rest is put to work in smaller stocks in the more developed markets, or in leading companies in early stage markets.

Bottom-up, sector based analysis with long established proprietary database
Our investment approach is bottom-up, founded largely on sector based company analysis. We carry out extensive research based on reliable local sources. We generally visit a company before making a significant investment. Over the past ten years we have gathered a unique library of company data. This library now forms a proprietary database which our managers use to select investment candidates.

Mainly a replacement value based analysis
We define value principally in terms of productive assets; we believe that we can consistently add value by identifying and investing in companies selling at less than the replacement value of their productive assets. For financials and intellectual property/service companies, we employ a modified, value-centred approach based on adjusted book value and implied growth respectively.

Asset allocation is subject only to a negative test
Emerging markets are prone to exaggerated market cycles; market inefficiencies abound. Our record shows that our active value-based methodology successfully identifies and buys mispriced stocks. We believe that country and sector weights should be driven by stock selection and subject only to a negative test: is there any fundamental reason why we should not have the country or sector exposure that our stock selection dictates?

Special factors in the region
In Eastern Europe, factors such as corporate governance, management, economic instability and institutional reform need to be given greater prominence in reaching an investment decision. Share liquidity is also an important criterion.

Gearing, hedging and cash
We are prepared to use gearing, but also to use cash defensively when appropriate. We do not hedge currencies as a matter of policy, since replacement value is always expressed in a common currency (e.g. US dollars). Therefore extremes of currency under-valuation or overvaluation are likely to show up in a correspondingly low or high replacement value.

As a closed-end investment trust company, the Eastern European Trust PLC may also from time to time invest in emerging market bonds and unquoted securities, including private equity.

Pictet Asset Management Limited