Private Investor: Lifting the curtain on Eastern European investment options

Timing, as they say, is everything when it comes to journalism and investment.

Timing, as they say, is everything when it comes to journalism and investment. So now is a good moment for a writing private investor to ponder the arrival today of the 10 new members of the European Union, mostly from the former Comecon bloc. It is unalloyed good news. However, I have the feeling that when it comes to buying into these potential success stories my timing has been slightly awry.

Let me explain. Way back in the middle 1990s, not long after the collapse of Communism, there was the largest and most successful launch of a collective fund in modern history: the Mercury European Privatisation Investment Trust (MEPIT). Now almost forgotten, it represented all that was right and all that was wrong about the western half of Europe's interest in the eastern half. For the very title reminded the average British investor of the easy money made during the great state denationalisations of the 1980s.

At first the fund itself was as interested in Spanish, French and Italian sell-offs as those further east, but as the 1990s wore on the hope was that even if the west European governments weren't prepared to give away their state assets, as was becoming clear, then the central and Eastern European governments might be desperate enough to do so. If Sid could make money out of the sale of British Gas, why should he not make even more out of the sale of the Czech gasworks? That was the appeal to greed implicit in the fund's prospectus.

What was more uplifting was the prospect of a wall of investment heading east to fund the region's catch-up with the west. Rapid accession to the European Union was the guarantee of eventual economic and political security. Greed, perhaps, might do some good.

Things didn't turn out that way, and I have to admit that I was caught up in the excitement of those times. There was a dearth of promising open privatisation issues in the old planned economies. Crony privatisation, especially in Russia, and the simple expedient of inviting big western utility and other firms to buy the companies direct put paid to any dreams of pan-European stagging. The most damaging event was the Russian crisis and rouble devaluation of 1998.

Before too long the fund underwent changes in control, in name and remit until now, as the Merrill Lynch European Trust, it is not much more than a tracker for the main (west) European markets and is facing a winding up in the summer. So this great fund goes out with barely a whimper. To be fair, the overall returns since the mid-1990s have been around 70 per cent, but not what investors once supposed possible. I stuck with the fund, but am glad that my investment was small and that I stopped subscribing when it changed its mandate.

Such disappointments may explain why there is still a shortage of small-investor friendly vehicles for investment in the region. It is a pity. The Russian stock market grew by about 50 per cent last year, as did the Czech and Polish bourses. Such markets are volatile but the potential for long-term growth is clear, although constantly threatened by low standards of probity. Tourists in Prague and Budapest (such as your correspondent) may find themselves enchanted by these cities but bitterly resent being ripped off by airport taxis that seem to be run by mafiosi. So what ought to be a great engine of growth - tourism - is compromised by petty fiddles.

As far as I can see the only accessible ways to invest in the east are as follows: Credit Suisse European Frontiers, JPMF New Europe and Jupiter Emerging European Opportunities in the unit trust sector, plus Baring Emerging Europe and Eastern Europe as investment trusts. I have a small investment in the JPMF New Europe fund, which I took up on the failure of the MEPIT, but what to buy now?

It is a matter of performance and charges. The unit trusts have high initial charges of between 5.25 and 5.5 per cent, a suspiciously coincidental set of numbers. However, such charges can be reduced by approaching a discount broker. For example, the JPMF fund's charge is cut to 1 per cent if you buy through Ample (iii.co.uk), and the fund seems to offer decent performance for the less risk-averse investor: I wouldn't wish to invest all at once but on a regular modest basis. My timing isn't great - I should have been doing this two years ago - but it seems an appropriate way to celebrate the reunification of our common European home.

s.o'grady@independent.co.uk