Central Europe & Russia Fund (CEE) Part 1 - Attractive Discount to NAV

CEE is categorized as a non-diversified closed-end Exchange Traded Fund (ETF) and is managed by the Deutsche Bank Group. It is non-diversified as its investments are focused in Central Europe & Russia. As a Closed-end ETF (CEF), it has characteristics of both stocks and mutual funds. It trades like a stock but like mutual funds the dividends and the realized capital gains are distributed to shareholders. The benchmark index of the fund is a combination of 3 indexes distributed as - Composite Eastern European Index (CECE) – 45%, Russian Traded Stock Index (RTX) – 45%, and the Istanbul Stock Exchange National – 30 (ISE-30).

Geographical Focus:

Russia, Poland and Turkey together make up about 85% of the investments. The fund’s history reveals that the focus has undergone many changes over the years: In February 1990, it started trading as the United Germany Fund Inc. In July 1992, it was renamed as Future Germany Fund Inc., to reflect diversification out of a focus on German blue chips. Five years later in April 1997, it shifted its focus out of Germany into Central Europe and was promptly renamed again as Central European Equity Fund. At the end 2002 it focused on CEE-3 (Poland, Hungary and the Czech Republic) that together accounted for more than 80% of the assets. This was in an effort to participate in the expected growth in those countries due to EU membership. Russian companies accounted for another 16% of the allocated funds. By August 2003, the fund had shifted its regional focus to Russia and the name was changed again to reflect that - Central Europe & Russia fund. The 2007 semi-annual report hints at a relatively minor change in focus with a hint about shifting out of Poland and the Czech Republic into Turkey and Hungary based on valuation. Further, the report also hints at moving out of the Russian energy sector into consumer-related sectors as an effort to cash in on the growing Russian middle-class spending.


Historical Performance & Premium/Discount to Net Asset Value (NAV):

The following table shows the total annual return, and the end-of-year Premium/Discount to NAV:
















YearReturn %Premium/(Discount)%
199726.47(18.9)
1998(26.39)(20.19)
19998.45(23.73)
2000(10.83)(27.1)
2001(8.17)(17.1)
200225.11(14.3)
200359.86(8.2)
200429.98(10.4)
200562.33(5.73)
200644.17(4.46)










Annualized 14.85Average - (15)



The fund realized sizable capital gains of 10% and 8% respectively in the last 2 years. Towards the end of 2006, the fund held roughly 20% of its assets as unrealized capital gains. The yields prior to 2005 are well below 1% as the fund maintained a low turnover ratio.

Similar Fund Comparison:

The following table is a comparison of funds that have exposure in Central Europe:








Fund NameRegional Details*Expense RatioCapitalizationPremium/Discount to NAV**
Morgan Stanley Eastern Europe Fund (RNE)Russia - 57, Poland - 18, Turkey - 92.06157M(11.6)
Central Europe & Russia Fund (CEE)Russia – 48%, Poland – 15%, Turkey – 11%1.02871M(13.1)
Templeton Russia & East Europe Fund (TRF)Russia - 931.84369M0.67

  • Regional Details as of 3/31/2007.
  • Premium/Discount data as of 8/31/2007.

TRF returned 50% per annum in the last 5 years out-performing CEE and RNE by almost 5% - TRF is a fund on Russia exclusively and the out-performance correlates well with the country’s own out-performance during the period. However, over the last 10 years, CEE out-performed RNE & TRF by about 2%. The expense ratios of the funds are roughly proportional to the capitalization with CEE being lowest at 1% and RNE highest at 2.06%. CEE and RNE are trading at a discount of about 10% while TRF is trading at a slight premium. All these are inline with their long-term averages.

Given the size of the fund, low expense ratio, and the sizeable discount compared to the NAV, CEE is a good choice among CEFs focused on Central Europe & Russia.

Central Europe & Russia Fund Analysis:
  1. Part 1 - Attractive Discount To NAV.
  2. Part 2 - Prudent Allocation Shifts.
  3. Part 3 - A Matter Of Timing.

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