With an arguably deep history of dealing with risk associated with Russia, investors and regulators in the Nordic region so far seem to be sanguine about any investment risks associated with the deterioration in the UK-Russia relationship.
Judging by immediate market reaction, the decision to expel 23 Russian diplomats from the UK and implement other measures intended to hit assets of those with links to Russia has not been felt.
Gazprom successfully placed a €750m Eurobond on 14 March, the same day that UK prime minister Theresa May announced the measures. The bond sale was oversubscribed – according to Bloomberg, the company was able to cut 38 basis points off the yield offered.
Olga Marjasova, portfolio manager of the Russia fund offered by Finnish manager Evli, added another angle to the response by noting that as a stockpicker the primary focus remains companies rather than politics.
“In the Evli Russia equity fund we focus on bottom up stockpicking and refrain from formulating top down views in market,” she said.
“So far there are no concrete significant measures announced and the market can only speculate about future announcements to come. Meanwhile Gazprom was able to place [on 14 March] a Eurobond, worth €750m, 8 years at 2.5% with strong demand seen.”
Fredrik Colliander, the manager of the Carnegie Rysslandsfond in Sweden, also invests in companies in Russia and the former Soviet Union.
He said: “The UK government obviously sees the poison attack in Salisbury as an attack on the UK itself – and it should. It can’t really be seen as anything other than that. The question is how the UK can respond and how far the UK government is prepared to go. Another important question is what kind of support the UK can count on from its allies – in NATO, the EU and globally?”
“Russia seems to always put national security ahead of economics, while the West sees things the other way around. But is the western patience with Russia now running out? Judging from the, so far, small reaction on the financial markets it is not. It seems that the markets are betting on the fact that this crisis will blow over and everything soon will be back to ‘normal’.”
“However, it could be possible that we soon come to a tipping point and the West will have to give more priority to security. We must remember that Russia, after all, economically is a small fish in the pond and the cost to the West of further isolating it is small.”
Meanwhile, from a regulatory standpoint, the Swedish Pensions Agency (Pensionsmyndigheten) commented that generally speaking it does not have a role making recommendations in respect of any fund that may be listed on its PPM platform, through which people saving for retirement can self-select funds using part of the contributions collected via the fiscal system.
A spokesperson said: “The Pensions Agency neither recommends or advises against individual PPM funds. The choice and decision should be made by the individual saver. Our homepage offers some general advice about how to think about one’s premium pension choice, around risk levels and around choice of equity or bond funds. However, we never give advice around individual stock markets and their potential risks and opportunities. We do not inform about market news, but there reference general news media.”
“If an external or internal event means that certain funds would not be able to be traded in a normal way we can, however, inform about this. This information can be provided via our homepage, but also via letters to savers. We have internal guidelines for information around certain frequently occurring fund events (closures, mergers, and so on). Elsewise, decisions about information are made on an ongoing basis depending on the event.”
Morningstar Sweden’s database lists 11 Russia funds. As of 14 March, the average return for 2018 to date in SEK was 7.4%, the data suggests. The top performing fund was the Evli Ryssland B, up 12.8%.
Returns have been volatile over time, however: over 10 years, the average return was virtually nil at 0.87%. But over 15 years, the average return is listed as 334.84%. Just six of the 11 funds have a track record stretching back that far.
Over three years the average return has been 59.57%.
Currency can have an impact. Morningstar Norway’s database suggests an average return over three years of about 18% in NOK.
Latest monthly data from Investment Research Finland lists the top performing fund in that local fund market as the Seligson & Co Russian Prosperity Fund Euro with return over three years in euro terms of 21.6%. The fund’s 12 month volatility is listed as 17.6%, while the one year Sharpe is 0.9.
The Prosperity investment team has been in Moscow since 1996, and makes 300 company visits per year, according to information on the investment manager’s website, while the fund’s Kid document rates it 7/7 for risk. The latest monthly note, for February, from the manager states that the the chief risk that this bottom up stockpicking fund faces is “corporate governance”.