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.

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