All About DBIAX: DMS Funds’ Baltic Mutual Fund

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One mutual fund offers targeted access to some of the world’s smallest developing economies.

Among the numerous mutual funds and ETFs that offer exposure to the stocks of the emerging world, most focus on a relatively small number of large developing economies. The BRIC countries of Brazil, Russia, India, and China are often well represented, as are quasi-developed South Korea and Taiwan.

There are often smaller allocations to several smaller Latin American and Asian countries, such as Malaysia, Indonesia, Peru, and Chile. A handful of South African stocks or Mexican companies may also make the cut.

Unlikely to be encountered is any exposure to the Baltic economies of Estonia, Latvia, and Lithuania, three former Soviet bloc countries located on an economically important waterway. These Baltic states are inching their way economically toward Western Europe. Among the hundreds of mutual funds that offer access to developing markets, there is one fund that targets this region.

Introducing DBIAX

The DMS Baltic Index Fund (DBIAX) is an indexed mutual fund that seeks to passively replicate the Nasdaq OMX Baltic Benchmark, which consists of the largest companies listed on the stock exchanges of Estonia Latvia and Lithuania. The three countries have a combined population of a little more than seven million — or roughly the size of the state of Washington and approximately 0.5 percent the size of China. All three are relatively rich by Eastern European standards, with moderate debt balances, relatively high unemployment rates, and near-zero inflation.

All three are also relatively new members of the eurozone, so there is reason to hope that increased ties with the major developed economies on the continent will further diversify and strengthen the economy.


“The Baltics had a very sharp economic contraction,” said Peter Kohli, Chief Investment Officer of DMS Funds. “But they came screaming out and posted some of the fastest GDP growth in the eurozone.”


Estonia has been a member of the EU since 2004 and of the eurozone since 2011. This has strengthened ties with Western Europe and helped reduce dependency on the Russian market. Estonia’s largest trade partners include Finland, Germany, and Sweden; Russia represents less than 5 percent of foreign trade. The country has generally maintained a pro-market government and has relatively low amounts of public debt.

The Tallinn Stock Exchange opened in 2006. Currently, approximately a dozen companies are trading on the exchange’s main list, including Tallink Grupp. Tallink, one of the largest shipping companies in the region, represents about 21 percent of the index underlying DBIAX.


Few countries saw their economic trajectory derailed by the last fiscal crisis more than Latvia; after growing by more than 10 percent in 2007, the Latvian economy shrunk by nearly 20 percent in 2008 and has yet to return to pre-crisis levels.

Corruption is relatively widespread in Latvia, and the slowing population growth also poses challenges to the economy. Assistance from several international partners helped lessen Latvia’s debt burden following the 2008 crisis, and the country’s economy has gradually opened in recent years. Latvia is one of the newest members of the eurozone, having joined in 2014.

Almost a third of Latvia’s GDP comes from exports, including several oil- and timber-related products. The country’s primary stock exchange, owned by Nasdaq, is the Riga Stock Exchange.


Despite an unemployment rate above 11 percent, Lithuania has managed to post moderate economic growth in recent years. The Lithuanian economy will remain sensitive to conditions in neighbouring markets, as trade with Russia and other Eastern European countries accounts for a significant portion of exports.

The Nasdaq OMX Vilnius is Lithuania’s largest stock exchange, with about three dozen stocks trading there.

Under the Hood of DBIAX

In addition to Tallink, the largest holdings in DBIAX include:

  • Tallinna Department Store: an Estonian retailer of clothes, gifts, and other items
  • Olympic Entertainment Group: an owner of casinos located in the Baltic countries as well as Poland, Belarus, and Russia
  • Tallinna Vesi: an Estonian water supplier and wastewater management company
  • Pro Kapital Grupp: a real estate development firm with operations in all three Baltic countries
  • TEO LT: Lithuania’s largest telecom company

Tallink, which is the largest holding at about 21 percent of assets, is the only shipping company. Other sectors represented include food and consumer staples (21 percent), hotels and restaurants (7 percent), and retail companies (6 percent).

The Case for Baltic Countries

The bull case for the Baltic countries is relatively straightforward: increased integration into the eurozone could spur foreign investment and economic growth. Simultaneously, the proximity to the Baltic Sea puts these countries in a position to benefit from a strong global economy and robust shipping activity.

At a time when many European countries have been taking steps away from free markets — Poland nationalized its pension system in 2013 — the Baltic countries have generally supported pro-market reforms.

“Russia has put a damper on things recently, but the Baltic countries are doing all the right things,” Kohli said. “I wish they were privatizing businesses a bit more quickly, but they are certainly moving in the right direction.”

Of course, with this opportunity comes some substantial risk. The Baltic economies collapsed during the most recent financial crisis and still face high unemployment rates and challenges in diversifying trade partners.

About the Author: Michael Johnston

Michael Johnston is senior analyst for All Emerging Markets, and also serves as COO of parent company Poseidon Financial. His investment expertise has been featured in The Wall Street Journal, Barron’s, and USA Today, among other publications. He resides in Chicago.

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