Russian into the UK

Julius Baer is passporting its Russia fund into the UK to capitalise on recovery in that country's markets.

Originally launched on 30 June 2008, the Julius Baer Russia fund is an offshore, Luxembourg domiciled SICAV that is now registered in the UK for investment. It is Euro denominated and seeks medium term capital growth from the Russian equity market. It will mainly invest in companies that are active in the following sectors: energy, telecoms, utilities, financials, wireless technology and consumer staples. Stock selection is through a bottom up process.

Currently, 60% of the fund is invested in energy and materials, with the top 10 holdings consisting of, in order from largest to smallest, Lukoil, Gazprom, Sberbank, Vimpel, Federal Grid, Mobile Telesystems, Novatek, Rosneft, NovoLipet and Rushydro-CLS.

It will be benchmarked to the MSCI Russia 10/40 index. Its AMC is 1.6%. Commission for IFAs was not available at press time, although Julius Baer said that it was in the process of making the fund available on various platforms.

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In 2008 Russian markets were in a veritable freefall, with the MICEX index, which tracks 30 of the major and most liquid stocks on the MICEX Stock Exchange, plunging 74% between 19 May and 26 October, to a low of 513.62 points from a year high of 1956.14 points. Similarly, the RTS index, which tracks 50 stocks on the Russian Stock Exchange, suffered a similar fate, shedding more than 70% of its value in a single year.

Much of the concern surrounding Russia's economy was focused on the country's reliance upon gas and oil revenues, which at the end of 2008 accounted for more than two thirds of its export revenue and about 20% of GDP. So concerned were commentators that The Economist predicted that Russia's real GDP growth would fall below 6% in 2009 and 2010.

A lot has changed since the end of 2008, however. Both the RTS and MICEX indices have been on slow upswings since their lows at the end of last year. Julius Baer reckons that the reason for the improved performance in Russian equities is down to rising oil prices, a stable currency and increased equity trading volumes. Nevertheless, some of these factors may also act as detractors in the future, chief being the fund's large petroleum holdings in Lukoil and Gazprom, which carry with the the volatility of the oil market.

Because this fund is offshore, it benefits from gross roll up because dividends are not taxed at source, but gains will still be subject to UK taxes when units in the fund are sold. One sticking point with this fund may be the 1.6% AMC, which is on the high side of charges for open ended funds.

geordie.clarke@ft.com