Even with that volatility corporate profits have risen, with booming share prices keeping valuations at what Brück considers fairly reasonable levels. By his estimate, Hungarian stocks are the cheapest, selling at about 11 times earnings. He considers equities in Poland and the Czech Republic, which sell at an average of about 15 times earnings, to be reasonably priced as well.
    During the May downturn, Brück increased exposure to Russian oil company stocks, which be believes still have room to grow. "The profitability of Russian oil companies is lower than their U.S. counterparts because most of them haven't invested enough in infrastructure changes that would increase efficiency. But that is changing. In many ways, it's better to invest in companies that are taking steps to increase profitability within the next two or three years, versus companies with high profit levels that may be difficult to sustain."
    Production increases appear likely for Lukoil, a longtime fund top ten holding. The oil giant is expanding its production activities outside of Russia into the Caspian Region, an area of huge undeveloped reserves. The growing need for gas from a large European customer base should help balance the political risk faced by Russia's Gazprom, a major holding since the fund opened its doors.
    The fund's universe includes 350 stocks. The backbone of the portfolio consists of the top 20 holdings, most of them large companies in the energy, financial and telecommunications sectors. But smaller stocks have become increasingly common. The normal roster of about 55 names has expanded to 75, reflecting Brück's desire to explore relatively new markets like Romania and Turkey a little bit at a time. To test the waters, he usually limits investments in smaller companies to a modest 0.25% of assets.

According to Milev, "The interesting growth stories over the next five to ten years will be in sectors that are not dominant in Eastern Europe at this point. Compared with traditional developed markets, the region has relatively few companies in the consumer sector. That will change as standards of living and personal incomes catch up to those in the U.S." A possible beneficiary of the trend is Pyaterochka, a Russian grocery store chain. Founded in 1999 in St. Petersburg, Pyaterochka has been one of the pioneers of modern grocery retailing in Russia. Its format of neighborhood discount stores has been well received by Russian consumers, offering a competitive alternative to open markets and Soviet-era outlets. Listed on the London Stock Exchange in 2005, it is the largest grocery retailer in Russia in terms of sales.

Fund holding Cesky Telecom, the Czech Republic's largest telecommunications company, is poised to ride the wave of rising ownership of personal computers and increased Internet use by that country's citizens. "Cell phone companies are moving toward the latter phases of growth, but the Internet is still in the earlier stages," says Milev. Created by the privatization of the Ministry of Posts and Telecommunications of the Czech Republic, the company was acquired by Spain's Telefonica in 2005. The stock sports a 10% dividend yield. 

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