Many UK retail Russia funds fell by more than 13 per cent last Monday after the country provoked the ire of the western world by moving troops into the Crimea region of Ukraine.
Russia’s actions raised the prospects of at least economic sanctions from the west and possibly even outright armed conflict. Fears about the crisis were even vocalised by European Central Bank president Mario Draghi, who said last week the crisis could become “substantial and generate developments that are unforeseeable”.
The Russian Micex index fell by 10.8 per cent on March 3, with certain large stocks such as energy giant Gazprom, which pumps a lot of its gas through pipes in Ukraine, falling further.
The Russian rouble depreciated by 2.5 per cent against the dollar on the same day, in spite of being heavily propped up by the Russian central bank pumping in money to support its value.
The six Russia-focused funds in the IMA fund universe fell by an average of 11.5 per cent on the day, with Robin Geffen’s Neptune Russia Special Situations and Neptune Russia & Greater Russia funds the biggest fallers.
The market and the funds have since rallied somewhat, but are still significantly lower than before the crisis escalated.
Bond funds suffered less of an impact as the emerging market bond funds with significant exposure to Russia only dropped in value slightly and kept up with the wider emerging market bond peer group.
However, the sell-off has also affected equity funds invested in Eastern Europe, which tend to have an exposure to Russia of approximately 50 to 60 per cent.
These funds include JPM New Europe and Baring Eastern Europe, as well as the BlackRock Emerging Europe investment trust, which suffered wild price swings last week as its presence on the stock exchange meant it sold off and rallied harder than its open-ended equivalents.
Global emerging markets funds have a wide range of exposures to Russia, which is actually not one of the bigger constituents of the MSCI Emerging Markets index. The Templeton Global Emerging Markets fund has the biggest exposure, at 22 per cent, while the Bric funds, investing in Brazil, Russia, India and China, are also heavily exposed.
Guy Stephens, managing director of Rowan Dartington Signature, said the crisis could have far-reaching implications for Russia as it will put off investors and discourage businesses from setting up there.
He said: “Events like this are likely to prevent any expansionary plans of any global business into either Ukraine or Russia for the next five years, possibly 10”.
He recommended investors should “sit tight and look for value opportunities”, but said to be wary of rushing in.
But Hilde Janssen, portfolio manager on the £4.5bn Skagen Kon-Tiki fund, which has an 8 per cent weighting in Russia, said the value style of the fund meant that the Skagen team opened up “a couple of smaller positions opportunistically” during the big sell-off last week.
She said: “We have had exposure to several crises and after each one we have come out with a stronger portfolio as we are not afraid of going in when others are fleeing.”
Ukraine-Russia crisis has impact on UK stocks (pic of Tom Dobell)
The share price of UK oil giant BP took a tumble last week, damaging the returns of a large number of UK equity and UK equity income funds that own the company.
BP’s share price fell because it has a 19.75 per cent stake in Russian oil company Rosneft, which it acquired last year when it sold its Russian firm TNZ to Rosneft. BP’s stake in Rosneft contributed 35 per cent of its profits in the fourth quarter of 2013 and investors have become concerned that the crisis in Ukraine could harm the revenues of Rosneft – and by extension BP.
BP’s share price has still yet to recover from its oil spill in the Gulf of Mexico in 2010, but it is once again paying a dividend and is now a regular staple in equity income funds.
There are 22 funds in the IMA universe that have a weighting of more than 6 per cent in BP. Topping the list are two UBS funds, UK Equity Income and UK Opportunities, that have more than 9 per cent in BP. Majedie also has two funds with high exposure, Majedie UK Focus at 8.2 per cent and Majedie UK Equity at 7.1 per cent, while Ben Whitmore’s £1.9bn Jupiter Income fund has a 7.1 per cent exposure and the oil giant is the largest holding in Tom Dobell’s (pictured) £6.8bn M&G Recovery fund.
