Page 57 - BNE_magazine_02_2020

bne February 2020 New Europe in Numbers I 57
Russia funds monthly wrap:
ETFs beat the RTS in 2019, return over 50% Ben Aris in Berlin
Russia’s RTS returned just under 45% in 2019 and all of the dozen exchange- traded funds (ETFs) that focus on Russia did well, with a few beating the index and returning more than 50% to investors in 2019.
And the market is off to a strong start in 2020. The RTS index broke through the 1,500 mark at the end of 2019 but in just the first two weeks of 2020 it passed another important milestone, breaking through the 1,600 mark for the first time in seven years.
The breakdown of sector performances in the first week suggests the so-called Santa Rally that started last autumn will continue into a spring rally that has returned 18% on average in the last decade in those years where there was no crisis.
Utilities were the star performer in 2019 and are off to a good start in 2020 too, returning 6% in the first week of trading. Oil & gas, telecoms and banks were also strong performers in 2019 and also did well in the first week returning 3-4%. The surprise result was metal & mining was up 3% in the first week of this year, as this sector had a poor year in 2019 after iron ore prices fell by a third due to falling demand from China, among other factors.
The consumer stocks remain depressed on the back of stagnant real incomes. But that may change in 2020 as Russian President Vladimir Putin said in his December annual press conference that his top priority for 2020 was boosting incomes to deal with the rising political unrest. Real incomes were improving throughout 2019, mainly driven by the faster than expected fall in inflation. Economists say that much of the economic growth in 2019 was driven by a nascent recovery in consumption, although Russians were still financing the
increase in consumption using credit rather than from rising incomes.
Only one of the dozen ETFs that invest into Russia, surveyed by bne IntelliNews in “Shopping for Russian stocks with ETFs” in September 2019, actually tries to track the RTS: ITI Funds RTS Equity UCITS ETF (Ticker: RUSE) and did a good job, also ending the year up by 45.5%.
Several of the other funds track the MSCI Russia index, which was up by 36% in 2019, but several of these ETFs, which are mostly based in London, did even better.
The Lyxor MSCI Russia UCITS ETF, Xtrackers MSCI Russia Capped Swap UCITS EFT, and HSBC MSCI RUSSIA CAPPED UCITS ETF all track the MSCI Russia index and all returned more than the either the MSCI Russia index and the RTS – 51.3%, 48.9% and 49.9% respectively.
The iShares MSCI Russia ADR/GDR UCITS EFT also tracks the MSCI and while it beat that index the 43.8% it returned was slightly less than the RTS’ gain.
East Capital Russia Fund
The biggest of the ETF with $1 assets under management (AUM) is the VanEck Vectors Russia ETF that is made of a basket of two dozen large liquid names and returned 36.2%, which was on a par with the other US-based ETFs focused on Russia. However, from the US-based ETFs the new kid on the block, the Franklin FTSE Russia ETF, did best and matched the RTS’ return by posting a 46.4% return for the year.
Finally East Capital Russia fund and the East Capital Eastern Europe fund that has a 40% exposure to Russia, also did very well, up 41.6%, while the broader East Capital Eastern Europe fund that also invests in the companies of Central Europe, also did well but returned slightly less, up 38.95% in the same period.
As the chart below shows the East Capital Russian fund has been performing well since the re-rating of the market began in 2016, when the first wave of retail stocks began to grow in value.
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