Which Australian funds have the biggest exposure to Russia?
Russian exposure is not widespread among active managers. Only 13 strategies in our global equities database hold greater than 5% portfolio exposure.
The escalation of Russian hostilities against Ukraine in recent days and weeks has caused investors to rethink their exposure to Russian assets. Western governments have quickly imposed a raft of new sanctions, including restrictions on the ability of the Russian Central Bank to deploy foreign reserves and the removal of some Russian banks from the SWIFT global payments system.
In this article, we report on the Australian global equity funds with the largest exposure to Russian equities in the Morningstar database.
Given Russia makes up only a very small proportion of global emerging-markets benchmarks, material manager exposure is not widespread. This is particularly the case for passively managed ETFs. Among the actively managed cohort, a small number of managers had material Russian exposure as at the last portfolio disclosure date. This has been primarily though exposure to Russian energy names, and to a lesser degree to the Russian bank, Sberbank of Russia.
The fortunes of Russian equities reversed quickly over the course of February 2022 and we would expect managers to be actively reconsidering exposures in light of increasing sanctions being imposed by Western governments.
We note that our analysis is based on the latest portfolio data available to us, which is based on manager reporting. Given the rapid change in the geopolitical environment managers may have sold out, or significantly reduced their positions, by the time of publication.
Country Composition of the MSCI Emerging Markets Benchmark
Emerging Markets Benchmark Composition Russia accounted for only around 3.2% of the MSCI Emerging Markets benchmark as at 31 Jan 2022. That benchmark is dominated by China (31.7%), Taiwan (16%), India (12.5%), and South Korea (11.7%).
Source: Morningstar Direct. Data as of 31/01/2022.
Emerging markets and Russia
Russia had been a lucrative place to invest up until the end of January 2022. The Morningstar Russia Net Return Index returned 28.6% in Australian dollars for the 12 months to 31 Jan 2022. This far it exceeded the 1% return eked out by the MSCI Emerging Markets Index over the same period. The benchmark had been dragged down by the underperformance of China (negative 22%) and Korea (negative 7%). Needless to say, fortunes were reversed in February 2022 as geopolitical tensions increased, with the Russian benchmark falling 48.4% in Australian dollars in the period up until 24 February 2022.
Emerging markets country performance
Source: Morningstar Direct. Data as of 31/01/2022 (Month End) or 24/02/2022 (Return Day to Day)
The strong performance of Russia over 2021 was driven by its leverage to oil, gas, and basic commodities. The Russian benchmark is highly skewed to energy and basic materials, accounting for 73.5% combined as at 31 Jan 2022. Similarly, the benchmark is highly concentrated among a few names. The top 10 stocks account for 78.3%, and the top three stocks (Gazprom, Sberbank of Russia, and PJSC Lukoil) account for 47.5%.
Sector composition of the Morningstar Russia Index
Source: Morningstar Direct. Data as of 31/01/2022
Top 10 stocks in Morningstar Russia Index
Source: Morningstar Direct. Data as of 31/01/2022.
Global equities manager exposure
Morningstar collects portfolio holdings data on a monthly or quarterly basis, depending on manager disclosure. We note active managers may have chosen to reduce their Russian exposure materially since their last portfolio holdings were disclosed. This analysis simply shows which managers had exposure at the last disclosure date and the materiality of that exposure. The table below shows the funds with the highest exposure to Russia as at their latest disclosure date.
Top 15 global equities managers ranked by Russian exposure
Source: Morningstar Direct. Data as of 28/02/2022.
Packer & Co Investigator Trust stands out as having had over 20% exposure as at 31 Dec 2021. Digging further into portfolio holdings data, this was composed of six individual names, including a 10% exposure to Gazprom and its subsidiary Gazprom Neft, and 5% to Rosneft Oil. The overall portfolio is highly concentrated with only 15 stock holdings, while 40% of the portfolio is held in cash or short-term US government bonds. GQG Emerging Markets had just over 14% exposure as at 31 Dec 2021. This was composed of nine individual holdings, including 3% in Sberbank of Russia and 2.5% in Gazprom. The strategy also held over 2% in PJSC Lukoil and Rosneft Oil. We note GQG had reported to the Australian Financial Review on 25 Feb 2022 their exposure had been reduced to 3.5%
MFS Emerging Markets had the third-highest exposure with just under 8% as at 31 Dec 2021. This was composed of six holdings including 2.8% in Sberbank of Russia, 1.7% in Moscow Exchange, and just over 1% in PJSC Lukoil and Polymetal International.
ETF exposure to Russia
The table below shows the top 10 exchange-traded fund exposures to Russia. It is noteworthy that passive ETFs have had a relatively low exposure given Russia makes up only a very small proportion of global and emerging-markets benchmarks. Exposures are likely to have been reduced in line with market/share price falls, but complete removal will be dependent on the stance taken by benchmark providers and rebalancing which occurs periodically.
Top 10 ETFs ranked by Russian exposure
Source: Morningstar Direct. Data as of 28/02/2022.
