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Russia / Ukraine conflict and fund’s exposure

Lonsec notes the serious impact the Russian-Ukraine conflict has had on financial markets. As these geo-political risks have come to reality, Lonsec has surveyed relevant asset managers to ascertain where products have had exposure to Russian, Ukrainian and Belarussian securities. Where such exposures have been identified, Lonsec has also ascertained what steps managers have taken given the fall-out from the conflict.

In terms of Russian securities, Lonsec notes that the following sub-sectors tend to have the greatest exposure:

  • Global Equities – Global Emerging Markets
  • Global Equities – Global Emerging Markets – Passive
  • Global Equities – Global Large Cap Quantitative
  • Global Equities – Global Large Cap Fundamental Value
  • Fixed Interest – Emerging Market Debt.

Outside of these areas, Russian securities tend not to be widely held due to the more developed market focused mandates.

In terms of products with exposures, Lonsec notes that there have now been several market events that have limited the optionality available to asset managers in terms of their response to Russian holdings. These include:

  • Major index providers, such as MSCI, FTSE and S&P Indices, having removed Russia from their indices;
  • Major exchanges, i.e. the London Stock Exchange (LSE), having current suspensions on trading of instruments such as American Depository Receipts (ADRs);
  • The Moscow Stock Exchange remaining closed to all trading; and
  • Liquidity in Russian debt instruments being currently dislocated.

In light of this, asset managers surveyed have disclosed that relevant securities have either been written off to nil or severely impaired. These actions have largely already been taken and are reflected in unit prices. Additionally, such managers have typically placed hard limits on not acquiring such securities for the foreseeable future.

Lonsec will continue to monitor this emerging situation for the impact on products under coverage. This will extend to reviewing asset manager investment processes for any long-term amendments following this event, albeit noting the difficulty of accounting for tail-risk events such as geo-politics. Also, Lonsec will shortly publish a more granular review on the impact on its Global Emerging Markets sub-sector which has been the most impacted.

 

Issued by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec). Warning: Past performance is not a reliable indicator of future performance. Any advice is General Advice without considering the objectives, financial situation and needs of any person. Before making a decision read the PDS and consider your financial circumstances or seek personal advice. Disclaimer: Lonsec gives no warranty of accuracy or completeness of information in this document, which is compiled from information from public and third-party sources. Opinions are reasonably held by Lonsec at compilation. Lonsec assumes no obligation to update this document after publication. Except for liability which can’t be excluded, Lonsec, its directors, officers, employees and agents disclaim all liability for any error, inaccuracy, misstatement or omission, or any loss suffered through relying on the document or any information. ©2022 Lonsec. All rights reserved. This report may also contain third party material that is subject to copyright. To the extent that copyright subsists in a third party it remains with the original owner and permission may be required to reuse the material. Any unauthorised reproduction of this information is prohibited.

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