EUROPE- Funds investing in eastern Europe and emerging European countries have enjoyed runaway returns in the twelve months running up to May. Figures from rating agency Standard & Poor’s show the S&P East Europe Index and the S&P Emerging Europe index up a respective 55% and 26% in dollar terms in the year to May.

S&P says fund managers and investors vary in their attitude towards the region. Managers have increased their involvement, particularly in central and eastern Europe, with a flurry of fund launches by continental groups like Allianz, BNP Paribas, Raiffeisen and SEB.

But investor interest has failed to reflect the stellar performance. The ratings agency says cash inflows into EAMA portfolios appear to have lagged new money going into more globally diversified emerging market funds. Exceptions to this are central and eastern European funds that are run near the region.

High returns in recent months have been predominantly driven by strong-performing Russian equities, in turn fuelled by rising oil prices. But diversification in the region can be a problem as markets remain heavily concentrated and the number of large, liquid companies relatively small.

European head of research James Tew says: “EAMA markets remain a small but growing sector. However, they appear to have been rather overlooked recently, which is a pity. Many investors who have backed them, have tended to be well-rewarded for their risk.”

Mr Tew singles out groups such as Baring, JP Morgan Fleming, Raiffeisen and Schroder as those whose patience has paid off in terms of strong relative performance.