BlackRock’s Vecht ups Russia holdings
BlackRock’s Sam Vecht has altered his bearish stance on Russia, saying “cheap” valuations have made its stockmarket more attractive.
Mr Vecht, manager of the ¤1.8bn (£1.4bn) BGF Emerging Europe fund, said he has been “relatively cautious” during the country’s recent elections, but said he had “significantly increased” his allocation to Russia now the elections had passed.
“We’re not a Russia fund, and we’ve held as little as 10 per cent in Russia previously, but we’ve made an active asset allocation decision [in Russia]. It is significantly higher than it was at the end of March,” Mr Vecht said.
According to the fund’s latest factsheet, which runs to March 31, the fund had 52.8 per cent of its investments in Russia. The manager said his cautious stance prior to recent presidential elections was sensible, but that current valuations “look really good value”.
According to Mr Vecht, a weaker currency coupled with lower levels of debt than peripheral Europe left the region poised for strong gains, with shares priced at three times their earnings.
“They still wouldn’t be expensive if they were trading on five times earnings,” he said.
Russian elections in March saw Vladimir Putin return for a third term as president to replace incumbent Dmitry Medvedev. Mr Medvedev has now replaced Mr Putin as prime minister. The elections witnessed widespread protests amid allegations over vote-rigging and corruption.
However, Mr Vecht observed that beyond the market turmoil caused by political change, there was a move towards privatisation of businesses in the region, which would bode well for companies.
He added that there were “very few people highlighting Russia as a good place to be”, which left more opportunities to find good companies at cheap valuations.
The manager said he particularly liked energy, financial and telecom stocks in the region. He said the Russian energy sector, in particular, relied less on current high oil prices than many observers maintained. Mr Vecht said the country’s heavy oil taxes would act as a cushion to any falls in the oil price, although he acknowledged shareholders would not “get as much on the upside” either.
The fund has delivered a loss of 14.7 per cent over the five-year period to May 7, compared with an IMA Specialist sector average of 13.4 per cent, according to Morningstar.