Adventurous trusts to Putin your portfolio
Earnings growth and re-rating scope on offer from funds with Russian exposure
Adeteriorating relationship with the US and weak oil prices have weighed on the Russian market for some time. Yet Russia is adjusting to the environment it finds itself in and earnings growth is beginning to materialise.
We believe now is a good time for investors with a higher appetite for risk to consider exposure to Russia via investment trusts or funds.
As Chris Colunga, co-manager of BlackRock Emerging Europe (BEEP), recently commented: ‘In Russia, with the economy in good shape, improving consumer sentiment and record low inflation, there is room for interest rates to be cut, further aiding the economic recovery.
‘Valuations are low, dividend yields are high and the potential remains for the market to re-rate on lower interest rates.’ HOW DO I GET EXPOSURE? There are various investment trusts with exposure to Russia trading on material discounts to their net asset value (NAV). The sole country specialist is JPMorgan Russian Securities (JRS), currently trading on 15.1% below its NAV.
Managed by Oleg Biryulyov since 2002, the trust’s objective is to provide capital growth from a diversified portfolio of investments primarily in quoted Russian companies or others which operate mainly in Russia.
It can invest up to 10% of its assets in companies operating in former Soviet Republics.
According to research group QuotedData, the JPMorgan investment trust offers investors a more balanced portfolio than an equivalent exchange-traded fund which tracks an index of Russian companies.
‘With the comfort of a closed-end structure, the freedom to invest outside Russia and to hold stocks that are not constituents of the main Russian indices, the manager has the ability to make long-term stock selection decisions (turnover is typically 25%-35% per annum) and produce returns that are differentiated from index benchmarks,’ says QuotedData.
With leading exposures to the energy, financials and materials sectors, the portfolio is fairly concentrated, typically boasting 25 to 50 positions. Holdings range from steel producer Severstal and agricultural commodity and food business Ros Agro to gold miner Polyus. The trust also has exposure to energy giants Gazprom, Lukoil and Rosneft.
Fund manager Oleg Biryulyov says: ‘In Russia, we believe the macro trend remains in favour of gradual recovery, and the central bank has capacity to cut rates further.