Fund managers trim exposure to Russia
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Fund and money managers with stock and bond picks tied to Russia have been adjusting their positions to limit exposure.
Why it matters: Financial sanctions have had a direct impact on Russia — and Russian markets — but they’ve so far had a less direct impact on the vast majority of investors.
Catch up quick: A few Russia-focused exchange-traded funds like the Van Eck Russia ETF and iShares MSCI Russia ETF have seen steep selloffs of about 20% and 33% today, respectively.
- BlackRock, which runs the iShares MSCI Russia ETF, today also suspended new investment in the fund.
- Another U.S.-based fund, GQG Partners Emerging Markets Equity, just trimmed its assets in Russia down to about just 4% last week from 16% as of December, according to Morningstar.
Yes, but: If you’re broadly diversified, you don’t have a lot of Russia exposure.
By the numbers: The average international equity fund — an investment portfolio that invests in international stocks — had about 99% of its holdings in places other than Russia, according to Daniel Culloton, editorial director of manager research at Morningstar.
- Even a specialized fund that looks to focus on emerging markets, like the MSCI Emerging Markets Index, has about 97% of its assets with other parts of the world.
The big picture: There are always knock-on effects even if positions in Russia are 1%-3%, says Culloton.
- Emerging markets, including Russia, tend to trade together and when there is turmoil, investors pull back and flee to safer bets, which impact other parts of markets.
Be smart: The people in charge of picking the positions for these portfolios may not choose to act on what they see right now — or may not be able to.
- They may not be able to find a market willing to trade Russian securities, for example, especially when the Moscow Stock Exchange is closed or the New York Stock Exchange and Nasdaq are prohibiting trades of Russia-based company stocks.
What they’re saying: Take a look at your investment accounts and see what index funds you’re in or what your active managers have been doing, says Culloton.
- “The most important thing to remember though, is that it's generally a bad idea to make rash decisions in the middle of an emotional crisis that's very fraught with cognitive dissonance.”
The bottom line: “It’s a very confusing, fluid, rapidly changing environment.”
