Geopolitical tension in Ukraine continues. A few days ago, Russia carried out military maneuvers on the border. Meanwhile, NATO reinforces its units deployed in the area. This uncertainty spreads to the markets, where negative returns take over investors’ portfolios, which pushes many of them to sell their shares and, indirectly, to sink the profits of the managers of the country’s investment funds. Thus, as can be seen on the financial services platform, Finect, the managers of the main investment funds in Russia have lost up to 30% since the conflict broke out at the end of October.
The reference stock market index in Russia -‘the Russian Ibex 35’- is the Moex, where the country’s large companies are listed, such as the banking giant Sberbank, the international airline Aeroflot or the gas multinational Gazprom. Investors – always eager to give their portfolio a return – can buy and sell shares of the index or invest through ETFs (which replicate the behavior of the index). However, these -often fed up with the dynamics that mark the reference indices- can choose to contact a manager (formed by an investment team) of a background -such as JP Morgan or Goldman Sachs- so that they can invest their portfolio in a country without having to follow the index.
The main problem that these managers are suffering is the lack of entry of net capital (the money that enters to replace the one that leaves). This causes the ‘net asset value’ (which is the decimal number that we see each day on the graph, and which arises from the division between the fund’s assets and its shares) to be reduced. If this is reduced, the fund charges a commission (which each manager establishes as they want) lower and loses benefits. Although all the managers are in the same market, each one diversifies its investments in a different way (energy, raw materials, basic consumer products or health services), according to the criteria of its analysts. This means that some funds -within the pessimistic scenario- may be better weathering the uncertainty.
The manager in Russia of the North American fund JP Morgan is directed by five investors: three ‘managers’ and two investment specialists. 90.5% of the assets are in Russia, 5.7% in Kazakhstan and 1.6% in Belarus. The remaining amount is in liquid money (all funds must have at least 1%). The main sectors where they focus their activity are: Energy (39,5%), raw Materials (19%) and financial assets (17.5%). Since the conflict with Ukraine broke out, the manager has lost a 22,73% of profitability. On the other hand, this year’s return is -11.1%.
The manager in Russia of the Chinese banking ‘giant’ is directed by the ‘manager’ Helen King. The fund focuses its investments on Energy (36.1%), the raw Materials (26.3%), the financial products (13.8%), the services of communication (8.6%) or the products consumer staples (with 6.9%). But this fund, like the previous one, has been suffering losses since the escalation of tension with Ukraine began. Thus, since the end of October it has lost a 21,7% of profitability. In addition, the return so far this year is -10.1%.
The manager of the Swiss financial services company also focuses most of its assets on energy (with 33.9%), followed by banking and financial products (21.4%), raw materials (19 .9%), and telecommunications services (14.3%). Unlike JP Morgan, both UBS and HSBC have up to 4% in liquid money. Since the end of October, the performance of this fund has fallen by 30,1%, while the return of the fund so far this year is -12%.
Apart from the managers mentioned, there are other funds that also invest on Russian soil. All of them have also seen significant drops in profitability since the conflict reappeared: East Capital (23%), DWS (26%), BNP Paribas (29.6%), Amundi Funds (27%), Raiffeisen-Russland-Aktien (27%) or Pictet-Russian Equities (24%). In addition, all of them continue this year with a negative return, as is the case with DWS (-13%) or East Capital (-11.5%).
As long as the conflict continues, uncertainty will continue to hover over the markets; and these managers -which represent a very low level of business for the funds- will probably continue to cause losses since, as confirmed by an investment specialist consulted by this newspaper, “it is most likely that the investor will remain on the sideline waiting for see if the situation clears up before depositing your money.