The case for investing in Russia is seldom in question, given its growing middle class, wealth of natural resources and low levels of debt. However, poor corporate governance and its isolation from western markets have put many investors off of the region.
However, all this could be about to change. A number of industry experts believe the country’s recent inclusion in the WTO bodes well not only for GDP growth and foreign investment, but also for corporate and government transparency.
This, along with historically cheap valuations, is seen by many as a significant buying opportunity. With this in mind, here are three portfolios that give investors access to the fast-growing market.
Neptune Russia & Greater Russia
There are only five pure Russia funds in the IMA unit trust and OEIC universe, only two of which are suitable for retail investors.
The highest profile of the three – and the only one headed up by an FE Alpha Manager – is Robin Geffen’s Neptune Russia & Greater Russia fund.
The £378m portfolio has returned 187.1 per cent since its launch in December 2004, compared with 119.44 per cent from its MSCI Russia Large Cap benchmark and 125.1 per cent from MSCI Russia.
Performance of fund vs indices since launch
Source: FE Analytics
It has also been less volatile than both indices over this period and lost around 3 per cent less during the down market of 2008.
With returns of 3.72 per cent, the fund has beaten both over five years, but its poor showing in 2011 means that it falls short over one and three.
Performance of fund vs indices
| Name |
1-yr returns (%) |
3-yr returns (%) |
5-yr returns (%) |
| Neptune - Russia & Greater Russia |
-8.77 |
25.87 |
3.72 |
| MSCI Russia |
-1.95 |
35.79 |
-9.26 |
| MSCI Russia Large Cap |
-1.71 |
36.31 |
-9.82 |
Source: FE Analytics
As its benchmark suggests, the fund is invested predominately in large caps. Energy and materials make up the biggest bulk of the portfolio, currently accounting for 53.5 per cent of assets under management (AUM).
In a recent note to investors, Geffen pointed to the relative cheapness of the Russian market:
"The Russian market is currently trading at just 4.95 times earnings, putting it at a 49 per cent discount to the emerging markets average."
"We consider the scale of this discount to be wholly unjustified and believe that the market has rarely been more attractively priced."
Neptune Russia & Greater Russia has a minimum investment of £1,000 and a total expense ratio (TER) of 1.85 per cent. It is currently available on all the major platforms.
The other retail-friendly Russia fund – HSBC GIF Russia Equity – has a minimum investment of $5,000. The fund has been headed up by Douglas Helfer since its launch in December 2007, during which time it has lost more than 19 per cent.
Schroder ISF Emerging Europe
For a slightly more diversified play on Russia, the five crown-rated Schroder ISF Emerging Europe fund is a decent option.
The portfolio, which is co-managed by Allan Conway and Tom Wilson, has around 59 per cent invested in Russia, with the remaining 41 per cent split largely between Turkey, Poland and Hungary.
The €373m fund is the standout performer of all the emerging Europe options in the IMA universe. It has returned 12.09 per cent over five years, compared with 1.41 per cent from its MSCI EM Europe 10/40 benchmark. Its closest rival, BlackRock Global Funds Emerging Europe, has lost 6.79 per cent over the period.
Performance of fund vs index
| Name |
1-yr returns (%) |
3-yr returns (%) |
5-yr returns (%) |
| Schroder - ISF Emerging Europe |
9.64 |
35.23 |
12.09 |
| MSCI EM EUROPE 10/40 |
1.94 |
27.45 |
1.41 |
Source: FE Analytics
It is also number-one in its peer group over one and three years.
The fund relies less on commodities than the Neptune portfolio. It has more than 30 per cent in financials, and a significant overweight in Telecoms, Media & Technology.
Schroder ISF Emerging Europe, which is domiciled in Luxembourg, has a minimum investment of £1,000 and a TER of 2.03 per cent.
The Eastern European Trust
For those interested in the closed-ended universe, Sam Vecht’s trust may appeal – particularly given that it is currently trading on a discount to NAV of just under 12 per cent.
The £126m BlackRock-managed portfolio has a poor long-term track record, thanks largely to its very poor showing in 2008 when it lost close to 68 per cent.
However, since taking over as lead manager in May 2009, Sam Vecht has steadied the ship, returning 59.74 per cent – almost exactly the same as its MSCI Russia 10/40 benchmark.
It currently has 65 per cent in Russia and again the remaining exposure is split largely between Turkey, Poland and Hungary. Like Schroder ISF Emerging Europe, it has a significant portion of its assets invested in financials, which currently account for 30 per cent of AUM.
The Eastern European Trust has a TER of 1.1 per cent, excluding performance fee.