Many happy returns

Russia’s equity markets are among the most volatile in the world, its economy inextricably linked to global oil and gas prices. So why have dedicated Russian funds outperformed all other types of fund in the world over the last 10years?

And this is no one-off either. The best performing fund on the planet over the last 10 years was hedge fund Prosperity Capital Management’s flagship Quest Fund, which returned a heart-stopping 3,604pc. The fund manager’s Prosperity Cub Fund and Russian Prosperity Fund also take the number two and three slots, returning 1,828pc and 1,604pc respectively.

East Capital’s Russia Fund returned a stonking 1,564pc to make it the world’s best performing onshore regulated fund, and fourth on the list of all types. There is a small controversy over which of East Capital’s and Prosperity’s funds are the best open-ended fund (both provide lists giving their fund as the best, citing Morningstar) as there is a difference between offshore regulated funds and onshore unregulated funds.

Comparing these two kinds of funds is a little like comparing apples and pears: the Quest Fund is a Cayman Island-registered off-shore fund that has a $100,000 ($63,400) minimum investment and must be accessed via a broker, making it largely the stomping ground of professional investors. East Capital’s fund, as an onshore regulated UCITS fund, is subject to much tighter EU regulations that affect its performance. And, with a minimum investment of €20 (£17.40), it is widely available to small retail investors.

Emerging markets have come of age and are now consistently outperforming the developed world. Between 2000 and 2010, almost all Western stock markets have lost money for investors instead of returning the long average 8pc they are supposed to. The Noughties have been a disaster for traditional investments: America’s S&P 500 was down by just under a quarter between 2000 and 2010, while the UK’s main index, the FTSE-100, lost only a little less. However, all the emerging markets have made spectacular returns in the last 10 years. The leading MSCI index – that combines all emerging markets into a single index – returned 102pc by New Year’s Day this year.

But even this robust performances pale against Russia’s ballistic performance; Russia’s leading RTS index returned a whopping 724pc over the same period – nearly four times as much as China.

“Negative returns in almost all other Western stock markets over the last decade challenge the widely held assumption the ‘advanced’ countries will keep getting richer,” says Liam Halligan, head of strategy at Prosperity, which has $3.1bn under management. “Yet the stand-out success of the Noughties has been the Russian stock market. Much maligned, the Russian market is given a wide berth by the vast majority of international investors. Yet it has an annual gain of 23.3pc since December 1999 – including last year’s dip.”

“Over the last 13 years, Russia’s stock market has only ever been among the top three best performing markets in the world – or the bottom three,” says Roland Nash, head of research at Renaissance Capital.

So, investors into Russia only have to ask themselves one thing: is this going be one of Russia’s good or bad years?

Worlds top 10 funds

January 1, 2000-December 31, 2009, dollar terms, net of fees

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