VTB brings Russian funds to foreign investors

VTB Capital Investment Management has launched two new funds investing in Russia and the CIS.

The fund follows a recently unveiled new dividend fund investing in Russian and foreign stocks. The move marked the first foray on the local market into mixing foreign and domestic stocks in a dividend seeking strategy.

The new funds – VTB Capital Russia & CIS Equity and VTB Capital Russia & CIS Fixed Income -will be aimed specifically at international private and qualified investors looking to gain exposure to Russia’s booming market.

VTB’s analysts believe emerging markets, especially Russia and the CIS, provide an attractive investment proposition. They point to the great number of undervalued companies that enjoy steady demand for output and have the potential for profit growth in the 15%-20% range.

The objective of the equity portfolio will be to achieve capital growth. Around 70% of its assets are large cap names. Investments may include entities incorporated outside Russia and the CIS whose operations or assets are concentrated in those regions.

This year Russia’s equities may not look so attractive, however, compared to some of their global peers. Russia’s MICEX index, albeit up 5.5% year to date, lags behind the MSCI World, which is displaying almost double this performance.

Some single country indices are doing better still. Germany’s DAX index, for example, is up almost 25% year to date.

The country’s bonds are a different story. Average five year government bond yields are around 7.5%, while corporate bonds of the same duration offer around 150 basis points more.

Compared to Germany’s bunds, which at a five year duration are yielding a mere 0.65%, Russia’s bonds have an obvious advantage.

Moscow’s move to liberalise the local bond market by making it possible to trade Russia’s bonds through Euroclear is expected to increase the demand for Russia’s debt from foreign investors, practitioners say.

VTB’s bond fund aims to achieve medium to long term capital appreciation. Its holdings will include convertible bonds, as well as more traditional fixed income securities. The fund is denominated in US dollars.

VTB Capital Investment Management is the asset management arm of Russia’s bank VTB Capital. It offers a range of open-ended funds and discretionary managed accounts, as well as management capabilities for venture funds, private equity and hedge funds.

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