Stefan Bottcher, manager of Manulife's GF Emerging Eastern Europe Fund and head of Eastern Europe portfolios for Charlemagne Capital, had a good 2002.
The fund, which invests primarily in securities that are listed in Eastern European countries, returned 23.55 per cent in the year to the end of January, according to figures from Standard & Poor's Micropal - outperforming the MSCI Eastern Europe Index by more than 20 per cent for the second year in a row.
This year, things have held steady, with the fund losing 2.7 per cent in January and gaining 1.7 per cent in February.
For Mr Bottcher, the million-dollar question is whether the good times will continue.
'This year is a challenge, of course,' he said. 'The geopolitical situation globally is very difficult to assess. We are stock pickers so we are not really in a good position to assess what is happening globally. But even those people who are specialists - claiming they understand the top-down much better than we do - might find it difficult today to assess what is going to happen, considering the situation in Iraq.'
Despite global uncertainty, he is hopeful this year. Central Europe remains attractive because of the economic growth heralded by European Union membership in 2004 while reforms in Russia, coupled with high oil prices, are causing a boom in that commodity-driven market.
'Looking specifically at our markets, they are still relatively attractive,' Mr Bottcher said. 'In particular, Russia is looking very, very cheap indeed. That is why I would argue that there is still some potential for this market.'
The fund consists of a concentrated portfolio of 20-25 stocks at any given time with the aim of trying to find six or seven attractive situations a year.
At present, it is 20 per cent invested in Russian oil companies, which are trading at about a 50 per cent discount to international prices.
One concern for Mr Bottcher is a persistently high oil price, despite the benefits it brought to Russia last year. He would like to see oil strike a balance at about US$20 per barrel. He would also like to see the rouble depreciate as an ongoing advance would harm Russia's long-term competitiveness.
'I would not reverse my position in Russia unless, of course, the oil price will be dropping very sharply,' said Mr Bottcher. 'But if you analyse the oil demand-supply situation today, it is very likely that oil prices will stay higher for much longer. Iraq will not be able to produce for some time, even if the situation has been resolved. Problems in Venezuela mean full production will not resume for at least another year. Also, US strategic oil reserves are at an historically low level.'
This year, Mr Bottcher has turned positive on Russian telecoms companies, with the mobile sector making up about 12 per cent of the portfolio.
'What [these telecoms companies] all have in common is that they are all very, very cheap indeed and they are growing very strongly,' he said. 'The telecoms sector has come back significantly from last year. It is benefiting in Russia, in particular, because of the consumer boom there now. There is a lot of liquidity around and that is as close as we can get to the Russian consumer.'
Outside of Russia, about half of the fund is invested in Central Europe, evenly split among Poland, the Czech Republic and Hungary - which implies an underweight position in Poland - the biggest market - and overweight in the smallest, the Czech Republic.
These markets have been helped by the depreciation of the US dollar as they are to some extent linked to the euro, but sub-par growth in Western Europe could put a dampener on things this year.
'About 50 per cent of the exports of Poland, Czech and Hungary go to Germany. That [economy] is very important,' said Mr Bottcher. 'Saying that, we have noticed that Eastern European countries have gained market share in the western market. Despite Germany's problems, exports to Germany have picked up quite strongly in central Europe. Competitiveness has increased as a result of very strong investment over the past couple of years.'
He maintains a good position in the Eastern and Central European banking sector as banks are benefiting from falling interest rates, bringing strong loan demand and a high return on equities.
Despite the broader economic picture, Mr Bottcher believes that careful stock-picking is key to success. The main risk he sees is growing efficiency in the underdeveloped markets in which he operates.
'The bottom line is these markets are relatively small and they are very inefficient. There are not many players, and certainly not many dedicated investors,' he said. 'As a result, there are a lot of inefficiencies and that is really where we see our niche - trying to exploit those inefficiencies.
'For our fund the main risk is that markets will become very efficient and we will find it more difficult to add value.'
Profile
1987: Graduated with a degree in business
1988: Joined WI Carr as an analyst
1990: Joined Fleming Investment Management
1994: Promoted to head of the emerging Europe group at Fleming
1999: Joined Schroders Investment Management as head of emerging European markets
2001: Appointed head of the Eastern Europe portfolio group at Charlemagne Capital
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