Russian Fund v the marketSource: www.eastcapital.com
Russia’s stock market is usually either one of the three best performing markets in the world – or one of the worst. Until now, these markets have been the preserve of institutional investors with a high appetite for risk, but the appeal has broadened as the market recovers.
“Sentiment has changed. Clients are calling us again asking about Russia, and we’ve been seeing significant fund flows over the past three weeks,” says Vladimir Savov, head of research at Otkritie Financial.
What is new is Russian fund managers are now specifically targeting retail investors in the West. The new funds are Undertakings for Collective Investment in Transferable Securities (UCITS), a classification that was established in 1985 by the EU offering a high degree of investor protection, making them especially suitable for small investors.
The Stockholm-based East Capital is the granddaddy of eastern Europe’s UCITS retail funds. The company set up its flagship Russian Fund in 1998, and today has about half a million investors with a total of €4.6bn under management. As little as €20 will buy a piece of the action; the fund is sold in 14 countries via a list of partners that includes banks, insurance companies, and independent financial adviser networks.
Despite the market crash two years ago, that saw three quarters of Russian equity’s value destroyed, East Capital’s Russian Fund was still the best performing UCITS fund in the world over the last decade, returning 1,500pc to investors. Indeed, four out of the five best performing funds in the world over the last decade were Russia-specialist funds.
“It is clear that the appetite for emerging Europe is back, as inflows have been picking up,” says Karine Hirn, one of the co-founders of East Capital. “Having an exposure to emerging markets used to be only reserved to those few with higher risk appetite, but it’s becoming a must now in investors’ portfolios because of the somewhat gloomy future for Western capital markets and economies.”
The latest entrant to the game is Renaissance Asset Managers (RAM), which launched a family of funds in October that covers Emerging Europe and Africa. RAM is part of the Renaissance Group that includes Renaissance Capital, a veteran Russian investment bank, founded by New Zealander Stephen Jennings.
Among its vehicles are two Emerging Europe funds that invest into Russia and its neighbours, while a Russian debt fund is also planned. All RAM’s funds have the UCITS stamp of approval, and the company is in the process of getting “passports” for each Western European country. Most of the funds will go on sale to retail investors in the new year, although they’re already available to institutional investors.
“The emerging markets – and especially Eastern Europe and Africa – are coming of age, and we are at the start of the next super cycle,” says Plamen Monovski, CIO of RAM. “The markets are volatile, but even in the worst non-crisis year, the poorest performance was a gain of 20pc; and there were only two crises in the last 13 years.”
At the same time, Russian mutual fund pioneer Troika Dialog is expanding its reach, and has launched several new funds targeting retail investors worldwide and hopes to get UCITS certification by year’s end. The bank launched its Russian mutual fund in 1997, and remains one of the country’s biggest domestic fund manager. “One of the things that we learnt from the crisis is that diversification is good, especially geographic diversification,” says Anton Rakhmanov, Troika asset management head.
Troika launched a Bric fund in October that will invest in all four leading emerging markets. It already has a family of funds that invest into Russian stocks, bonds, utilities, infrastructure and small cap companies, which will be converted to UCITS by January.
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