Fidelity is set to split the assets of the firm's Emerging Europe, Middle East and Africa fund, isolating its Russian assets in an "external side-pocket" while it attempts to close the fund.

The split, which will occur on 24 March, will see all assets of the fund transferred to the new Fidelity Sustainable Emerging Markets Equity (SEME) fund, except for its Russian holdings.

A Fidelity spokesperson explained that "existing Russian holdings will remain in the EMEA fund, effectively making it an ‘external side pocket'".

Investors in the EMEA fund will continue to hold shares in the fund, while also receiving an equal number of shares in the new SEME fund.

The SEME fund will have a "new and differentiated investment policy" to the previous fund, a Fidelity spokesperson said, with a more concentrated portfolio of 30 to 50 holdings.

An investor letter credited the move to the market impact of the Russian invasion in Ukraine, as well as the firm's "long-standing desire to broaden the fund's investment universe and for it to adopt a sustainable investing focus".

Invasion

Fidelity had planned to repurpose the fund into the SEME fund but postponed the move following the invasion.

It subsequently closed the fund to new investments.

The fund's assets under management fell sharply following the invasion of Ukraine and was down 45.1% throughout 2022.

It had an 8.6% exposure to Russia, with energy giant Gazprom sitting in its top ten holdings.

Following a proposal on 6 January to split the assets of the fund, shareholders voted in favour of the proposal last week (8 February).

After 24 March, Fidelity said that no investors will be able to buy or sell shares in the fund, as it attends to close it.

The investor letter said: "When possible, the Russian assets will be sold with the aim of returning value to shareholders. In the current environment it is not possible to estimate how long this process might take to complete, or what the eventual value might be."

The EMEA fund will not be charged any annual management charges, though Fidelity said it may adjust that approach in the future.

It added: "The EMEA fund may though be charged specific charges relating to, for example, depositary, custodian and legal services, but these costs will be funded by Fidelity"

A Fidelity spokesperson said: "The new portfolio management team brings a wealth of experience, while adopting a collaborative approach which involves continuous interaction with the wider emerging market portfolio management team members.

"The analysis of sustainability factors, particularly the quality and integrity of company management teams, has always been a key part of the new team's investment process."