The fund management industry is being forced to suspend billions in investments held in Russia focused investment funds and ETFs, according to asset management sector data. While the tragedy of the Russian invasion of Ukraine continues on our television screens, many investors are waking up to the fact that assets held in Russia-focused funds, even daily dealing ones, may be inaccessible for months, even years.
It is estimated that some €3bn in assets have been suspended. There are hopes in some quarters that funds will be unlocked once Russia re-opens its stock exchanges, and some portfolio managers will be cautiously hopeful that this will allow them to liquidate more assets, but it may not be that easy.
Fitch Ratings said that the figure could be even higher. For example, the Fitch numbers do not include BNP Paribas Russia Equity, which alone had €685m in Russian assets held in its portfolio. Franklin Templeton, another big fund manager, is looking at a further €250m in suspended assets. Other big beasts caught with money on the wrong side of this trade include Swiss fund manager Pictet, which had €567m in its Pictet Russian Equities strategy at the end of February. Also suspended.
Redemptions could be difficult at the moment
There will obviously be many investors who will be trying to redeem units from these funds should they reopen anytime soon. This will force the fund managers into trying to sell shares in an effort to meet these demands. This at a time when Russia is on the verge of defaulting on its USD debt.
BlackRock has said it is suspending its Irish ETF, iShares MSCI Russia ADR/GDR UCITS ETF, which had €220m in assets at the end of January. Many foreign fund managers, it seems, were heavily exposed to larger Russian companies like Gazprom and Lukoil which are likely to be heavily exposed to international sanctions as well.
Fund managers are also dropping buying activity – BlackRock for example has said it is halting the further purchase of all Russian stocks, bonds and other securities in its funds. Emerging markets fund managers with more diversified exposure will also be holding suspended shares in their portfolios, but if Russia exposure is relatively small, will not need to suspend funds and can meet redemptions by selling securities in other markets.
China could turn out to be a bigger problem
In the grand scheme of emerging markets fund management, Russia is not on the same scale as China, which has also been seeing a sell-off this week due to the further spread of the pandemic in that country, and lockdown of a province and a major industrial zone. That will be focusing minds on emerging markets and Asia desks this week.
At time of writing, Russia’s central bank had said it would not be opening the Moscow Exchange at all this week. Some non-open market transactions will be allowed as transactions using the SPFI payment system. Foreign exchange, money market and repo market transactions are understood to be happening.
Investors piling into agribusiness ETFs
With Russia funds suspended, many investors were making hay this week, piling into the long agri commodities trade using ETFs. Data provider TrackInsight noted net $220m into agribusiness ETFs since the Russian invasion of Ukraine. This took asset levels in this space to their highest levels since 2014. Agribusiness ETFs invest in agriculture-related equities, an alternative to commodity ETCs, which invest in physical agricultural commodities or futures.
Big beneficiaries of investor enthusiasm for agribusiness include the iShares Global Agriculture Index ETF and VanEck Vectors Agribusiness ETF in the US, and the iShares Agribusiness UCITS in Europe.
