In response to the Russian invasion of Ukraine, the wider world has shown notable unity and decisiveness in placing sanctions and asset freezes upon oligarchs close to the Russian regime, Russian companies, and restricting global payments systems.

There’s been an immediate knock-on effect in the investment industry.  One major index provider has described Russian market as “uninvestable”.  Many companies face revising the value of their Russian operations and holdings to zero.

So what does it mean for Ireland-based investors and pension holders?

Read on to find out what’s happened to valuations of Russian assets, whether you hold any, and what you can do as an investor in response to war in Ukraine.

What’s happened Russian assets?

Russian businesses are on the end of a sanctions regime designed to impose pain on the architects of the war on Ukraine.

In particular Russian banks (including the central bank) are being disconnected from the global financial system, and Russian individuals and companies are having overseas assets frozen.

It has caused the value of Russia-based companies to plummet, with many being impossible to value.  The Moscow stock exchange was closed all of this week with authorities fearing major selling pressure when it reopens.

In practice many Russian assets can’t be bought or sold at all.

What’s happened Ukrainian assets?

While it is nothing compared to the human tragedy and carnage of the war, it is obvious that running anything close to a normal economy is impossible in Ukraine.

But these difficulties have not stopped the Ukrainian government from implementing creative ways to keep their finances going.

It has issued war bonds at 11%, announced the sale of non-fungible tokens to fund the war effort, and its central bank has opened a special account where members of the public can send funds.

What’s my exposure?

The vast majority of Ireland-based private investors – including Moneycube customers – have little or no exposure to Russia-based companies.

Zurich Life, for example, which manages over €25 billion in funds in Ireland, does not invest in companies listed on the Russian stock market, or Russian domiciled corporate credit or sovereign bonds. Nor do they hold positions in key Russia-oriented listed elsewhere such as Polymetal, Sberbank, and Gazprom.

Goodbody Fund Managers, whose funds are available to pension holders and investors using New Ireland, confirmed this week that they

“do not (and never have) invested in Russian equities. The exposure of the companies across our funds to Russia is immaterial (a few of the luxury goods companies that we own sell products in Russia)”.

Source [pdf]

But investors may find they have a Russian exposure in two areas.

Emerging market index funds are not immune

By definition, index funds – also known as passive funds – do not discriminate.  They aim to track the performance of an index as faithfully as possible.

That means that holders of emerging market equity and bond index funds are likely to have some exposure to Russian shares and bonds.

For example, Vanguard’s emerging markets equity index fund had an allocation of 3.3% to Russia as at 31 January 2022, including positions in energy company Gazprom and the country’s largest bank, Sberbank.

If you had an all-equity portfolio with, say, a 10% allocation to this emerging markets fund, you would therefore have an exposure of around 0.3% to Russian assets.

The main index providers have now announced that Russia will no longer be included in emerging markets indices.  This means that emerging market index funds will no longer seek to hold Russian assets, and will likely look to sell their holdings if possible.

Something similar is happening with regard to Russian bonds.  Vanguard’s emerging markets bond fund had 3.1% of its value in Russia as at 31 January 2022.  Vanguard UK has made the following statement:

“Russian bonds have been downgraded to ‘junk’ status by rating agencies Moody’s, Fitch and S&P. This means that at the end of the March, Russian sovereign bonds denominated in USD and Russian Ruble will be removed from the Bloomberg Global Aggregate Index.

“As such, they will be removed from all applicable Vanguard index and ETFs as at 31 March 2022”.


Of course, the big benefit of an index-based approach is investors are highly diversified, meaning the impact of these changes is quite confined.

How else might you be invested in Russia?

There remain some surprising Russian exposures – and this reveals a weakness of a pure index investing approach.

Not all Russian-oriented businesses are listed in emerging markets.  Russia- and Kazakhstan-focused gold miner Polymetal, for example, is a member of the FTSE100, FTSE Gold Mines and MSCI Russia indices.  It is being moved from the FTSE100 index due to a fall in value – but will now enter the FTSE250 index.

So if you own a UK midcap fund you may find your money being used to buy in to this company, right when others are rushing for the exit.

There is also a handful of investment funds purely focused on Russia.  It is hard to see how these funds can continue in their current form. Most of them are presently suspended, meaning you cannot buy or sell them.  Moneycube has never recommended such a fund.

Lastly, global companies have been caught up in events too.  For example, one of Ireland’s biggest companies, buildings materials business CRH, announced on Thursday that it will cease operations in Russia after 25 years of operating there.

What can you do if you’re invested in Russia?

If you have invested using Moneycube, you are already in a highly diversified, global portfolio.  Our investigations suggest most of our customers have no direct exposure to Russia.

If you do have an exposure, it will be via an allocation to an emerging markets index fund.  In the vast majority of portfolios, the Russian component is below 0.35% and in the process of being exited by the manager.

If that is the extent of your exposure, then there is likely to be little benefit in taking direct action.  (You can read about how to respond to the wider market repercussions here).

In these troubled times it is some reassurance that fund managers are making the changes investors would expect, in order to play their part in isolating sanctioned businesses from the global financial system.

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