Underperformance forces foreign investors to wrap up Russia funds

Underperformance and low risk appetite among investors are driving Russia focused foreign investors to wrap up their funds and seek returns elsewhere.

One of these is US-based Third Millennium Russia fund, which is leaving the local market after 14 year track record. Russia’s news source RBC Daily quotes founder John Connor announcing the fund’s closure this week.

The fund has been rapidly losing money this year, with year to date performance down 13.03%, and long term performance is no better, with five year returns down 12.68%.

It is not the first Russia-focused fund to announce its closure just this month. Sweden’s Vostok Nafta, one of the first foreign investors into Russia after the collapse of the Soviet regime, has also closed its Russia-focused fund due to diminishing returns and low risk appetite.

In a company report, Vostok Nafta’s managing director Per Brilioth said: “We have felt that even though there remains potential upside in our portfolio of Russian-listed holdings, the risk reward ratio has deteriorated.”

RBC Daily suggests that one of the factors putting managers off Russia-focused funds is the prevailing trend among investors to allocate to Russia via exchange traded funds.

Data from Emerging Portfolio Fund Research has shown that almost 95% of the total inflows into emerging markets from the start of the year to end of July came through ETFs.

The situation also remains burdened by existing and anticipated political instability, experts speculate. To date, around 20 traditional funds still invest in the Russian market from overseas. 

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